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EUR/GBP Exchange Rate Slides in Run up to Italian Election

Political Uncertainty in Italy Pressures EUR/GBP Exchange Rate

The Euro Pound (EUR/GBP) exchange rate is sliding this morning as markets remain wary ahead of the Italian elections later this week.

At the time of writing EUR/GBP has slid 0.3%, with the pairing sitting at a new three-week low.

Euro (EUR) Slides on Italian Election Uncertainty

The Euro is edging lower at the start of this week’s session as markets brace for the Italian general election on Sunday.

While there is no longer any worry of a new government that may potentially wish to abscond from the Euro, the general uncertainty of any major election is always likely to pose some risk to EUR.

With Italy having the second largest debt load in the Eurozone after Greece, investors are likely to be wary of any party that is looking to increase spending instead of cutting debts.

Bank of Italy Governor Ignazio Visco has already voiced his concerns over some parties’ pledges to slash taxes and raise spending as he warns that Italy’s debt ‘cannot be sidestepped’.

On top of this recent polls suggest that Sunday’s vote is likely to end in a hung parliament, something which would likely result in even more political uncertainty.

Meanwhile the outcome of Sunday’s election is also seen as potentially impacting the European Central Bank’s (ECB) monetary policy outlook.

Analysts warn that an unstable political situation in Italy could be a reason for the ECB to look to extend its stimulus programme beyond September.

Pound (GBP) Rising on Brexit Optimism

At same time the Pound is trending higher this morning as GBP investors await key Brexit speeches by both Theresa May and Jeremy Corbyn.

Corbyn is set to speak later today, and is expected to discuss Labour’s shift in regards to remaining within a customs union, post-Brexit, something that will likely be welcomed by investors.

Meanwhile after hammering out plans with her cabinet last week the PM is expected to announce her plans for an ambitious Brexit trade deal in the coming day, hopefully giving some idea of what the government may be targeting in talks.

Lee Hardman, currency analyst at MUFG said;

‘The upcoming speeches will be very much in focus for market participants who are still looking for more clarity on Brexit.

‘I’m not sure the uncertainty is going to clear enough in the coming week. It’s likely to hold back the pound in the near term.’

EUR/GBP Forecast: Draghi Speech to Prompt Movement in EUR?

Looking ahead the EUR/GBP exchange rate may be met by some further volatility later this afternoon as ECB President, Mario Draghi appears before the European Parliament.

Draghi is likely to face questions on the Eurozone’s recent recovery and how close the ECB may be to winding up its quantitative easing programme.

With any hint from Draghi that the ECB remains open to extending its bond purchases possibly leading to some further losses for the single currency.

Meanwhile the Pound could tumble later this week if the UK’s latest PMI figures show that private sector activity continued to slow in February.

Particularly impactful will be the Manufacturing PMI which economists forecast may have slipped from 55.3 to 55.0 this month, striking its lowest levels since last June.