Pound euro exchange rate stabilises on warning Italy could spark new Eurozone crisis
Philip McHugh May 21st 2018 - 2 minute read
The pound struggled in the end of trade last week, with growing Brexit uncertainty weighing heavily on the currency.
Sterling looks to be struggling again at the start of this week as GBP/USD tumbles to $1.3419, GBP/CAD nosediving to C$1.7271, while GBP/AUD and GBP/NZD have both slipped AU$1.7850 and NZ$1.9470 respectively. Only GBP/EUR appears to be holding this morning as it stabilises at €1.1442.
Looking ahead the pound may enter into a holding pattern today as markets await the release of the latest UK inflation figures on Wednesday.
What’s been happening?
The pound fell against the majority of its peers on Friday, with confusion over the UK’s government’s position on whether to stay within the EU customs union post-Brexit dragging on market sentiment.
While Prime Minister Theresa May previously denied reports that the UK would stay within the customs union past 2021 earlier in the week, sources within the government suggested the UK was considering a backstop agreement, which would see the UK remain within the union if a solution to the Irish border problem cannot be found.
Meanwhile the GBP/EUR exchange rate held steady on Friday, allowing the pairing to end the week’s session up in the face of the growing fears surrounding Italy’s incoming coalition government.
Markets worry the populist government could become a disruptive force within the Eurozone, halting any attempts at greater integration and also threatening the stability of the bloc due to ‘irresponsible economic policies’.
At the same time the GBP/USD exchange rate continued to tumble at the end of last week, with surging US treasury yields helping to bolster the appeal of the US dollar.
What’s coming up?
The pound may struggle to find any momentum today, with investors likely to be reluctant to alter their positions in the currency ahead of Wednesday’s inflation figures.
The inflation figures are likely to be seen as a key indicator of whether the Bank of England (BoE) could still raise interest rates later in the year.
Meanwhile the euro may remain on the back foot at the start of this week’s session should markets remain focused on the uncertainty surrounding the new Italian coalition government.
Finally, the easing of US-China trade tension looks to be supportive of the US dollar today, with the currency possibly seeing further gains at the tail end of today’s session if Federal Reserve policymakers seem broadly optimistic in a number of speeches this evening.