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Euro to Pound (EUR/GBP) Exchange Rate Dips as Italian Coalition Proposed

Risk of Eurosceptic Italian Government Drags EUR/GBP Exchange Rate Down

The Euro (EUR) has made a minor decline against the Pound (GBP) today, following the news that an Italian coalition government could be in the making.

Ahead of a deadline on Sunday, the leaders of the League and Five Star Movement parties have announced that they could form a functioning government.

This would resolve the ongoing political deadlock that Italy has endured since March, but would also bring two Eurosceptic parties into power.

Both groups have challenged Eurozone governance in the past and could put Italy on course to clash with the multinational union.

This policy style has been rejected by Italian President Sergio Mattarella, who has warned that:

‘[Neither party should] look to 19th-Century solutions when trying to solve the problems of the 21st Century.’

Pound to Euro Exchange Rate Recovers on Lingering BoE Interest Rate Hike Hopes

The Pound (GBP) has firmed against the Euro (EUR) today, thanks to a shift in outlook among Sterling traders.

The mood was initially negative on Thursday, when a Bank of England (BoE) interest rate freeze led to the Pound to Euro (GBP/EUR) exchange rate dropping sharply.

Since then, however, there has been growing optimism that there could still be a UK interest rate hike in 2018.

The hope is that as the BoE decisions are largely data-dependent, a steady stream of positive economic results could push policymakers into raising rates later this year.

Euro to Pound Exchange Rate Forecast: Will Eurozone GDP Slowdown Spark EUR/GBP Losses?

The coming week’s data may prove a drag on the Euro to Pound (EUR/GBP) exchange rate, as slower GDP growth is forecast in Germany and the Eurozone.

Tuesday’s data is tipped to show falling levels of economic growth in both fields, which could damage the Euro due to reduced odds of tighter monetary policy.

Any Euro losses could intensify on Wednesday, when final inflation rate figures for April are due out.

Estimates are for slower levels of price growth in all fields, which could further lower the EUR/GBP exchange rate.

On the other side of the pairing, there could also be Pound (GBP) fluctuations against the Euro (EUR) in the week ahead.

UK employment rate stats will be out on Tuesday, alongside average earnings data and a measure of changes to jobless claim counts.

Forecasts have been mixed for the high-impact earnings stats, which some analysts believe will show falling wage growth when earnings are included.

The pace of earnings growth has steadily risen since May 2017, so a forecast-matching slowdown would be a major disappointment for GBP traders.

May’s UK inflation rate stats are predicted to show a rise, so higher inflation and slowing wage growth might worsen the Pound to Euro exchange rate.