Last Friday, the pound hit fresh lows against the euro (1.0638 on the interbank rate), the weakest we have seen in approximately 10 years. This week however we have seen a mini revival. One likely factor that has contributed to this is the growing political instability in Italy.
Matteo Salvini’s League party have seen an increase in popularity and have withdrawn from their coalition with the 5-Star-League to capitalise on this recent rise in the polls. They were looking to put forward a vote of no confidence but could not agree on the terms. Italy is the blocs third-biggest economy, so continued political uncertainty may have the potential to cause volatility for the currency.
Senior FX strategist at ABN Amro said “Political uncertainty in Italy is weighing on the euro. Investors will continue to focus on developments and could shy away from investing in the currency.”
Germany’s ZEW sentiment index fell to its lowest level since December 2011, which has added to the ‘bearish’ forecasts for the euro. The ZEW is a sentiment indicator and asks 300 financial experts for their opinions on questions relating to the markets and economy.
The German economy has been suffering due to external factors such as Brexit and the US-China trade wars, both affecting manufacturing exports. Global manufacturing is in a recession and does not look like changing assuming the current protectionist measures continue. German and eurozone GDP figures are out today and should provide further information on the current economic outlook.
The Eurozone have seen equally as dire sentiment figures with six-month expectations down from -14.5 to -43.6, these are similar figures we saw in the financial crash in 2008 and does not make good reading for the Eurozone.
The recent poor economic results may have put pressure on the European Central Bank (ECB) to consider new quantitative easing options which has historically weakened the currency in question.
To find out more about the political situation in Italy or a currency transfer including euros, you may wish to get in contact with your account manager here at FCD.
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