The Euro should be set for a volatile period ahead as Italy will be under the spotlight over its government spending plans. In the run up to the Italian election promises were made by both parties in the coalition to cut austerity by cutting taxes and increasing spending. The 2019 budget is what is being discussed today and details of the budget will be presented to parliament this afternoon. The fiscal expansion goes against EU rules and there is likely to be lively debate to find the best way forward.
UK Prime Minister Theresa May will be making a speech this afternoon to try and unite the Conservative party and find support for the Chequers deal. After a strong speech from Boris Johnson yesterday there is likely to be huge interest in what the Prime Minister says today and how likely there could be change of path for Brexit.
Considering the response from the EU to the Chequers proposal has been cold to date then there is still a chance of a no deal Brexit or a Canada style arrangement and this appears to be gaining support. The recent EU summit in Salzburg highlighted how resilient the EU is to offer concessions to the UK and unless there is a change then there will be a much greater chance that there will be a no deal. In the short term the outlook for the pound is not looking very optimistic at this time.
These coming days and weeks look set for a very volatile period for GBP EUR and politics in my view will be the main driver for sterling exchange rates. Whilst I am cautiously optimistic a deal of some description will be reached it may not come until 2019 and there are so many factors that could change the course of Brexit either by postponing it or moving towards a no deal Brexit altogether.
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