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Monthly Wrap: EUR slumps as ECB confident but Draghi warns of trade war dangers

currency-newsMonthly Wrap: EUR slumps as ECB confident but Draghi warns of trade war dangers
Key Takeaways:
  • EUR Monthly Highs: £0.89, $1.25, AU$1.59, NZ$1.71, C$1.61
  • EUR Monthly Lows: £0.87, $1.21, AU$1.56, NZ$1.67, C$1.54
  • Italian election and Eurozone monetary policy outlook weighed on euro
  • ECB President Draghi warned of impact of trade restrictions
The euro was unsettled in the run-up to Italy’s general election on 4th March, which saw support for the incumbent Democratic Party collapse in favour of the Eurosceptic Five-Star Movement, as well as an alliance of centre and far-right parties organised by former Prime Minister Silvio Berlusconi.

The parties now have to negotiate some form of coalition agreement – one that is almost certain to leave Italy with a populist government.

So far this hasn’t overly weighed on the euro, as markets had priced-in such developments in the weeks running up to the ballot; on a trade-weighted basis the euro hit its lowest level since 11th January on 1st March.

EUR exchange rates climbed ahead of the European Central Bank (ECB) monetary policy announcements on 8th March, but then quickly slumped again after President Mario Draghi performed his party trick of sinking the euro regardless of how positive the meeting had been.

While the Governing Council sounded less convinced that quantitative easing may need to be increased or extended, Draghi warned that US protectionism and financial deregulation could threaten the stability of the world economy.

The past month’s data has proved largely-supportive, showing strong results, even if the figures were slightly weaker than previous readings in many cases; the Eurozone economy remains on robust form, but inflation refuses to accelerate towards the ECB’s target.

Looking ahead, the Italian coalition negotiations could cause some turbulence for the Euro as the terms of any agreement are made public.

Also likely to cause some jitters, if not a full-on slump or advance for EUR will be Eurozone finance ministers’ decision regarding whether to award Greece the next tranche of bailout funding, especially as the end of the programme is only a few months away.

As well as the usual stream of economic data, any signs that EU officials look set to impose retaliatory import tariffs on American goods in response to the soon-to-be-implemented steel and aluminium levies could heighten fears of a global trade war and stymie the euro.
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Currencies Direct

Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.

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