The Five Star and League Parties in Italy have been sworn in as the new Italian Government, but this hasn't provided the certainty you would expect as discussions of further public spending and a reduction of taxes go against the EU grain. The Euro report below looks into the impact this could have on the single currency. The table below shows the difference in Euros you could have achieved when buying £200,000.00 at the high and low points during the past 30 days.
|Currency Pair||% Change||Difference on £200,000|
This week ECB members Praet, Hansson and Knot have all confirmed that the ECB will give forward guidance in regards to the Quantitative easing program at the next ECB meeting. Speculation over the last 6 months has been that the QE program would be removed by the end of the year, due to the positive performance of the European economy throughout 2017.
Quantitative easing, which is the introduction of new money into an economy has been in place since May 2015, and when it was introduced we saw the euro devalue considerably. Therefore you would expect, if the Quantitative easing program is stopped the euro would strengthen. Even off the back of the news that forward guidance is going to be given, the euro has moved to a 2 week high against the US dollar.
For any client that is selling euros short term, the 14th of June could provide opportunity.
Now that Five star Movement and Lega have been sworn in as the Italian government you would expect the political uncertainty surrounding Italy would have diminished. However that is far from the truth. Both parties have promised to address the Italian debt problem by cutting taxes and increasing spending, and this strategy is not supported by the EU as countries need to spend within their means. Furthermore reports are suggesting that the Coalition are preparing to write to the EU, to ask for €240billion of debt to be written off, however Chancellor of Germany Angela Merkel has ruled out any kind of debt relief at this stage.
For clients involved with euro exchange rates, Brexit negotiations in my opinion are still the key driver for GBPEUR exchange rates. Nevertheless, if the new Italian government go against EU rules and continue to rack up debt, I think the Italians will be in a similar position the Greeks were in only a few years ago. At that stage the Euro weakened dramatically as it looked like a country could be defaulting from the Euro and if Italy are not careful they will be on a similar path.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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