Tag Archives: Italy

Currency Matters: EURO

Currency Matters: EURO

The Euro has fallen across the board over the weekend as Italians voted “No” in a referendum rejecting Prime Minister Renzi’s constitutional reforms, prompting his resignation. The anti EU and populist 5 Star Movement campaigned hard for a “No” vote and the outcome will be seen as  an indication of growing support of Italy’s populist anti EU Movement and is seen as confirmation of growing anti-establishment/anti EU sentiment across Europe.  However, it is worth noting that in the short term a grand coalition will likely be formed keeping 5 Star away from power and most Italians do continue to support Euro membership. Moreover, in Austria the electorate voted for Pro-European Alexander Van der Bellen against the anti EU and far right candidate Norbert Hofer.

The markets reacted clearly, pushing the Euro sharply lower through a 12 month low to 1.0507 against the Dollar. Against the Pound the Euro fell to its lowest level since the BREXIT Referendum result to 0.8305 (GBP/EUR 1.2041).

In the UK, today marks the start of the key landmark legal hearing by the Supreme Court on whether Parliament’s consent is required before the Government can trigger Article 50 – the formal process of leaving the EU. This follows the election of pro-EU Liberal Democrat Sarah Olney in the Richmond Park by-election following Zac Goldsmith’s, a prominent “Leave” supporter, decision to quit the Conservative party and run again as an independent following the Conservative Government’s decision to expand Heathrow.

The European Central Bank (ECB) meeting on Thursday will be seen as the key event this week. Policymakers are set to decide on the future of the EUR 80b a month asset purchase program, which is scheduled to end in March. The result of the Italian referendum will heighten the need for the ECB to extend the program. Meanwhile, depending on market reactions to the referendum, the ECB could also tilt the program towards Italian government bonds to stabilize any volatility. Markets are currently expecting a six month extension to the program. The Euro would be vulnerable to deeper falls if the ECB announce something greater than that.

The Euro could continue to fall and the next level of support against the US Dollar is 1.0461 and 0.8116 (GBP/EUR 1.23) against the Pound.

Please do not hesitate to contact the dealing team on telephone +44 (0) 1695 581 669 to discuss how upcoming events could have a bearing on the cost of your foreign currency payments and how Currency Matters can save you time and money.

GBP/EUR 3 Month High

The Pound has appreciated to a 3 month high of 1.1947 against the Euro and appreciated against the US Dollar to 1.2695 following hints from UK BREXIT Minister that the UK wanted to get the best possible access for goods and services suggesting paying for access to the Single Market may be an option.

This Sunday Italy holds its referendum on constitutional reform with Prime Minister Renzi pledging to resign if voters don’t vote for his proposals. Whilst this is not a vote on EU membership there will be significant implications if Renzi resigns as a new caretaker government would likely be appointed and new elections could follow as early as next year. This could open the door to the election of the Five Star Movement a populist, anti-establishment party that has said in the past it wants to call a referendum on membership of the Euro.

Please do not hesitate to contact the dealing team on telephone +44 (0) 1695 581 669 to discuss how upcoming events could have a bearing on the cost of your foreign currency payments and how Currency Matters can save you time and money.

Stick or Twist

The Euro is slightly down this morning as remnants of the political scandal that emerged in Spain last month continue to linger. Allegations published in Spanish Newspaper El Pais last month, suggested that from 1997 onwards, Spanish Prime Minister Mariano Rajoy received regular payments of €25,000 that were hidden from tax authorities. Although these are, at present, only allegations, the mere suggestion of such conduct is enough to worry markets. Should these allegations be proved to be true then we could see sentiment towards Spanish assets turn considerably negative, which would inevitably hurt the Euro.

Additional uncertainty is also likely to grow within the Eurozone as we approach the Italian elections at the end of this month, especially should the gap close further between front runner Pier Luigi Bersani and Berlusconi’s PDL party. This uncertainty is likely to have contributed to the tapered advance of the Euro this week, as its unrelenting strengthening seems to have now been somewhat restricted. The Euro has dropped off against both Sterling and the Greenback this morning, with the Pound having risen by nearly half a cent so far today against the Euro, and the pair is currently trading at 1.1575. The Euro has similarly dropped off against the Dollar, falling to a daily low of 1.3513 this morning, before holding, and slightly recovering to its current level of 1.3530.

Markets are likely to be trading relatively flat this afternoon with little economic data due out and only UK House Price data having been released this morning, showing prices declined in January. However the main driver behind decreased volatility today is likely to be the fact that market participants are holding their current positions ahead of the ECB and BOE interest rate decisions due to be made tomorrow afternoon. Whilst both rates are expected to remain unchanged, should there be any adjustment, this could well provoke substantial movement in the Pound or the Euro.
In yesterday’s blog we recalled comments made by Luxembourg Prime Minister last month that the Euro was then already ‘dangerously high’. It would appear that such concerns are growing throughout the Euro Zone regarding the current strength of the Euro. French President Francois Hollande commented yesterday that “the Eurozone must, through its heads of state and government, decide on a medium-term exchange rate”. It is likely that Mario Draghi will face questions regarding this issue at the ECB press conference tomorrow and any suggestion of controls being placed on the Euro could weaken the currency considerably.

Mark Webster

Bank of England Quarterly Inflation Report & Eurozone Bond Yields

Today’s Bank of England Quarterly Inflation Report has suggested that UK inflation has peaked and is likely to fall sharply from its current rate of 5% (down from 5.25% in the previous month September) to 1.3% over two years. The Bank has also cut its UK economic growth forecasts to 1% for 2011 & 2012 but indicated growth should climb towards 3.1% in two years.

Both the outlook to economic growth and inflation are seen as unusually uncertain and much will depend on developments in the Eurozone, the Eurozone debt crisis posing the single biggest risk to the UK economy.

Current forecasts suggest that UK interest rates are likely to remain low for a prolonged period of time with the first interest rate hike from the Bank of England not expected until at least 2013 whilst the prospect of further Quantitative Easing remains a strong possibility.

The debt crisis continues in Europe with Italian 10 year debt trading back above the unsustainable level of 7% and the yield of Spanish government bonds back above 6%. Besides the usual suspects, debt market yields of France, Austria, Netherlands and Belgium have also risen sharply, hitting Euro era highs. Moreover, the spread between French and German 10 year debt has also hit a fresh high.

Clearly the debt crisis poses a significant threat to the value of the Euro, the Euro has been surprisingly resilient so far but over the medium term I would expect the Euro to fall against the US Dollar and Sterling.

On the interbank market the Pound is currently trading between 1.57-1.58 against the US Dollar and between 1.16-1.17 against the Euro.

Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.

BoE & ECB

The Bank of England and the European Central Bank have both left their monetary policies unchanged today at 0.50% and 1.50% respectively as growth slows and the European debt crisis spreads to Italy and Spain.

The Pound is up against the Euro trading between 1.14 – 1.15 and in the region of 1.63 against the US Dollar. The Euro currently trades at 1.42 against the US Dollar.

The Pound has also appreciated against commodity currencies, passing 1.54 against the Australian Dollar and 1.58 against the Canadian Dollar.

The exchange rates mentioned in the above email are based on the current interbank rate. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.