EUR/GBP Exchange Rate Subdued as Italy in Focus
The Euro Pound (EUR/GBP) exchange rate has relinquished its early gains this morning as markets are spooked by Italy’s new coalition government.
The EUR/GBP exchange rate is not virtually unchanged from this morning’s opening levels, having relinquished most of its early gains.
Euro (EUR) Exchange Rate Gains Trimmed by Italy Concerns
While the Euro Pound (EUR/GBP) exchange rate has opened higher this morning, the single currency is struggling to find further support, due to growing concern over the potential impact of a new Italian coalition government.
Reports indicate that the Italy’s anti-establishment 5-Star Movement and the far-right League are close to finalising a deal to form a new ruling coalition.
The prospect of Europe’s third largest economy being ruled by a Eurosceptic coalition government is a worrying proposition for markets, who fear it may look to halt further Eurozone integration.
Some senior officials in Europe have expressed their concern that the new populist coalition government could spell trouble for the stability of the Eurozone.
One official suggested:
‘There is a real danger that the new Italian government could, through its irresponsible economic policies, set the stage for the next euro zone crisis.’
With another adding:
‘Everybody is worried that Italy is becoming ungovernable, and that populists will drive the country into another deep crisis.’
Observers have also raised concerns over the incoming government’s fiscal policies, as economists fear Italy’s already substantial national debt could balloon under plans to cut taxes and increased government spending.
Pound (GBP) Exchange Rate Softened by Brexit Uncertainty
Meanwhile the Pound (GBP) is struggling to find its feet this morning as fresh Brexit uncertainty weighs on the currency.
This renewed market interest in Brexit comes in the wake of reports that the UK government could seek to remain in the EU customs union past 2021, something which was later denied by Prime Minister Theresa May.
These conflicting messages have raised further uncertainty surrounding the government’s Brexit plans which are still yet to be published despite nearing the next EU Summit.
EUR/GBP Exchange Rate Forecast: Can Sterling Rebound on UK CPI Data?
Looking ahead to next week’s session the EUR/GBP exchange rate may fall back following the publication of the UK’s latest Consumer Price Index (CPI).
Economists forecast Wednesday’s CPI figures will reveal the UK’s inflation rate ticked up from 2.5% to 2.7% in April.
The rebound in inflation may help to buoy the Pound on the expectation it could force a response from the Bank of England (BoE), likely bolstering hopes the BoE could still raise interest rates later this year.
At the same time the Euro (EUR) is poised to tumble next week with the release of the Eurozone’s latest PMI figures, with private sector growth expected to have continued to slow in May.