Pound Sterling to Euro Exchange Rate Touches Monthly High on Signs of another Italian Election
Despite a lack of fresh supportive factors in Pound (GBP) trade over the past week, the Pound to Euro (GBP/EUR) exchange rate touched a new monthly high on Tuesday and could see even further gains depending on Eurozone political developments.
Due to broad Pound weakness, last week saw GBP/EUR slip slightly from 1.1439 to around 1.1410. This week though, Euro (EUR) weakness has already helped the pair to recover those losses and then some.
On Tuesday, GBP/EUR touched on a one-month-high of 1.1494 and the pair continued to trend near that level at the time of writing.
With a lack of drivers in Pound trade, the Pound to Euro exchange rate has been influenced largely by Italian political news causing high volatility in Euro trade this week.
The latest developments have indicated that Italy could see fresh elections later this year, worsening ‘Italexit’ concerns.
Pound (GBP) Exchange Rate Outlook Limited as Bank of England (BoE) Bets Fade
While the Euro’s broad weakness has made it easier for the Pound to Euro (GBP/EUR) exchange rate outlook to rise, Britain’s domestic outlook is still full of uncertainties which is likely to limit the Pound’s strength.
Last week saw a slew of underwhelming UK ecostats which reaffirmed to investors that Britain’s economy was performing worse than expected this year.
The data included slower than expected UK inflation figures, and the latest growth projections made economists more doubtful that an upward revision was possible.
According to Friday’s UK growth data, domestic growth is still projected to have slowed from 0.4% to just 0.1% in Q1 2018.
Amid the concerning UK economic outlook, Bank of England (BoE) interest rate hike bets fell.
Investors are now uncertain that the BoE will hike UK interest rates at all in 2018, despite bets earlier in the year that the bank could hike UK rates as much as twice before the year was out.
Euro (EUR) Exchange Rates Slump on Revived ‘Italexit’ Fears
Over the bank holiday weekend, Italy’s League party and 5-Star Movement coalition attempt to form a government seemingly collapsed.
Italian President Sergio Matterella vetoed the coalition’s choice for finance minister, as Paolo Savona was perceived as too Eurosceptic for the position.
Carlo Cottarelli was named as Italy’s next Prime Minister – for now. He was tasked by the President with forming a temporary government, signalling to the nation that there could be more elections on the way.
Economists now expect that Italy could head back to the polls again as soon as September and this has caused mass uncertainty in European markets.
Euro investors are especially anxious, as Italy’s potential upcoming election is already being called a ‘referendum’ on Italy’s Eurozone membership according to some analysts.
Uncertainty from Spain has caused even further uncertainty in the Eurozone, as Spanish Prime Minister Mariano Rajoy could face a ‘no confidence’ vote on Friday.
Pound to Euro (GBP/EUR) Forecast: Eurozone Politics in Focus
This could be a big week for the Euro, but depending on how things go Eurozone political uncertainty could persist in the mid to long-term too.
Of course, any notable political developments in Italy or Spain could drive Euro trade.
Currently, the Euro’s weakness is being caused by market uncertainty about the political futures of these nations. As a result, if things develop to make the political outlooks more firm and steady instead, the Euro would recover.
If the prospect of another Italian election becomes less likely, or if Spain’s Prime Minister Rajoy survives the upcoming ‘no-confidence’ vote, the Euro would become more appealing and likely push GBP/EUR lower.
However, if Italian elections look more likely or if Rajoy’s position is affected by the no-confidence vote the Euro could see even further weakness.
This politically inspired weakness would likely be even more influential than upcoming Eurozone ecostats, though the slew of upcoming data could still drive GBP/EUR.
German inflation projections will be published on Wednesday, followed by French and Eurozone figures on Thursday. Eurozone unemployment could also influence the Pound to Euro (GBP/EUR) exchange rate.
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