EU set to punish Italy for rising debt
If you plan to buy Euros, it might interest you to know that EU finance ministers have agreed to pursue plans to penalise Italy with a fine to the value of £3 billion. Last week, the ministers confirmed that Italy’s high debt contravenes EU regulations, prompting the European Commission to take steps to punish the Italians.
On top of the ongoing budget dispute, Italy appears more likely to leave the Eurozone than anyone else. This is after a proposal to create mini-BOTs, a parallel currency to run alongside the Euro, which can be used by the Italian government to ease debt. This is a controversial method to say the least.
Matteo Salvini, Italian Deputy Prime Minister, stated that “We don’t need to ask Germans, Spanish and Luxembourgish for money. We want to use Italians’ money for Italians.”
The Euro is suffering due to this situation and investors are watching with a keen eye. This does have the potential to weaken the Euro further against the majority of major currencies. It is close to a two-year low against the US Dollar.
Is the Euro going up?
The Euro has suffered of late due to several contributing factors. The latest is the European Central Bank’s (ECB) June assessment of the Eurozone economic outlook, which was perceived to be worse than expected. This due to global demand issues and slowing domestic economies.
Analysts had predicted that the ECB would change the Eurozone’s interest rates before long.
However, Mario Draghi, President of the ECB, recently suggested that policymakers are now likely to wait for a longer period before raising rates. Mr. Draghi said that the ECB have all the necessary tool’s in the toolbox to deal with upcoming issues. In all honesty, there is very little justification for a hike.
Pound to Euro forecast
The decline of Sterling is widely attributed to the increasing probability of a ‘no deal’ Brexit taking place on October 31st. This follows the failure of Prime Minister Theresa May’s Brexit deal to pass through Parliament, and her subsequent resignation.
Analysts from Danske Bank have said a combination of weaker domestic data, global risk sentiment and ECB policy will play a part in a softer GBP/EUR exchange rate, going forward. There have been fears that “non-Brexit drivers [will] weaken the GBP further over the summer.”
However, Brexit will remain the key driver on GBP/EUR. I am afraid that, until we have clarity on the UK’s political situation and Brexit, the Pound will remain fragile.
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