EUR/USD Exchange Rate on Hold as Italy Braces for a Second General Election
The Euro US Dollar (EUR/USD) exchange rate is trading in a narrow range today as markets express concern over the possibility of fresh elections in Italy.
At the time of writing EUR/USD exchange rate is holding close to this morning’s opening levels, although has rallied from the four-month low struck earlier in the session.
Euro (EUR) Exchange Rate Weakened by Italian Political Concerns
The the Euro (EUR) remains on the defensive against the US Dollar (USD) and many of its other peers today as markets become increasingly concerned about the current political situation in Italy.
Following a general election back in March, in which no one party was able to secure a majority, the failure of the three largest parties to reach a coalition agreement has led President Sergio Mattarella to issue an ultimatum.
Mattarella said on Monday that only two options remained if the current round of talks broke down, with Italy facing fresh elections or the introduction of a neutral caretaker government to rule until the end of the year.
Given the choice it appears the two most influential parties, Five Star Movement and The League have opted for the former as they both rejected the idea of a caretaker government.
The potential for a second round of elections has done little to instil confidence in EUR investors, who fear that there is no guarantee a second election will break the political deadlock, while at the same time stoking fears that it could delay the country’s 2019 budget decision.
US Dollar (USD) Exchange Rate Maintains Strength on Rate Hike Expectations
Meanwhile the US Dollar (USD) remains in a position of strength today as the currency continues to be buoyed by Federal Reserve rate hike expectations.
These expectations were bolstered on Tuesday as, Jerome Powell spoke in Zurich, with the Chair of the Fed warning investors that they should not be surprised by further monetary tightening from the US central Bank, even going so far as to suggest that some investors may not be suitably positioned for incoming rate hikes.
The Federal Open March Committee (FOMC) will next met in June, when it is overwhelming expected to vote to raise US interest rates for the second time in 2018.
EUR/USD Exchange Rate Forecast: Will Uptick in Inflation Propel the US Dollar Even Higher?
Looking ahead markets are bracing for further losses in the EUR/USD exchange rate tomorrow, following the publication of the latest US Consumer Price Index (CPI) figures.
Economists forecast Thursday’s data will reveal that US inflation ticked up from 2.4% to a new one-year high of 2.5% in April.
This is likely to prompt the US Dollar (USD) to soar as it further bolsters expectations that the Federal Reserve will look to accelerate interest rate hikes in the second half of 2018.
Meanwhile the focus for EUR investors is likely to be on a speech by European Central Bank (ECB) President, Mario Draghi at the end of this week’s session, with the Euro likely to plunge if Draghi strikes a cautious tone following the recent slide in the Eurozone inflation rate.