Since Tuesday’s losses, the Euro (EUR) has made a major recovery against the Pound (GBP) today and risen by 0.8%.
The Italian political crisis weakened the Euro yesterday, but the single currency has conversely been helped by Italian news today.
Bond sales have raised €5.6bn for the Italian government, a sign that there are still high hopes about national economic stability.
The Euro has been further supported by news of falling German unemployment and above-forecast inflation for the country.
(Last updated 30th May, 2018)
Collapse of Italian Coalition Talks Causes EUR/GBP Exchange Rate Decline
The Euro (EUR) has faced difficulties today and fallen by -0.4% against the Pound (GBP), which puts it at the lowest pairing exchange rate since April 2018.
This deterioration is mainly down to negative developments in the ongoing efforts to form a functional Italian government.
The general election in March failed to produce an outright majority and coalition talks between the two parties with the most votes have fallen through.
The last straw was the coalition putting Eurosceptic Paolo Savona forward as Finance Minister, which led Italian President Sergio Mattarella to cancel talks.
Mr Mattarella has instead created a ‘caretaker government’ until a full government can be formed, which means that another general election is on the cards.
This has destroyed any hopes for a speedy resolution to Italy’s leadership crisis and ensured Euro to Pound Sterling (EUR/GBP) losses today.
Italian Consumer Confidence Slowdown Extends EUR/GBP Exchange Rate Losses
The Euro (EUR) has been further weakened today by the news that Italian consumer confidence levels have fallen in May.
Although the dip from 116.9 points to 113.7 wasn’t a massive drop, it has still been taken as an indicator that political issues are harming the sentiment readings.
Despite this decline, however, business confidence levels remained steady during May at 107.7 points.
It is worth noting that these readings came late in May and may not reflect any declines in confidence caused by the latest roadblock in government formation.
Fears about Post-Brexit City of London Struggle Limit GBP/EUR Exchange Rate Gains
The Pound (GBP) has risen by 0.3% against the Euro (EUR) today, but these gains are mainly down to EUR weakness rather than any strength for Pound Sterling.
UK economic news has been unsettling for the most part, with Pound traders still concerned by the possibility of the City of London being frozen out by the EU.
The City is the centre of UK financial services, hosting a number of international banking institutions.
The worry is that if UK negotiators are unable to secure a good deal for the City after Brexit then these companies could leave, causing job losses and diminished status.
The Treasury and Bank of England (BoE) may be at odds on solving this problem, although a Treasury spokesman has insisted that the two bodies are cooperating.
Euro to Pound Exchange Rate Forecast: Are Further EUR/GBP Losses ahead on Confidence Data?
The Euro (EUR) remains at risk of falling further against Pound Sterling (GBP) on Wednesday, when a range of high-impact Eurozone confidence measures will come out.
May’s readings are expected to show falling optimism in most cases, with levels of business, services sector and consumer confidence forecast to drop.
If all of the readings decline then the Euro to Pound (EUR/GBP) exchange rate could fall because of lower expectations for future sentiment scores.
The next major UK data will be Thursday’s early GfK consumer confidence reading for May; a slight improvement has been forecast.
While minor, such an increase could lead to the Pound making minor gains against the Euro towards the end of the week.
