Euro (EUR) Exchange Rates Soften as European Commission Rejects Italian Budget Plans
UPDATE: As the European Commission opted to reject Italy’s draft 2019 budget the mood towards the Euro (EUR) soured this afternoon.
While the decision did not surprise investors this still sets the stage for a prolonged dispute between EU officials and the Italian government, leaving the single currency exposed to further political risk.
This news overshadowed a better-than-expected Eurozone consumer confidence index, keeping the Pound Sterling to Euro (GBP/EUR) exchange rate on an uptrend.
Threat to Irish Backstop Proposal Adds to Pound Sterling (GBP) Bearishness
UPDATE: Reports that the Democratic Unionist Party (DUP) is planning to vote in favour of an amendment to block the proposed Northern Ireland backstop saw Pound Sterling (GBP) extend its downtrend this afternoon.
With a number of Conservative MPs already backing the proposal this creates a fresh element of uncertainty around Theresa May’s ability to secure a Brexit deal.
As cabinet members were apparently unimpressed with May’s performance in a lengthy conference call the Pound Sterling to Euro (GBP/EUR) exchange rate looks set to remain under pressure from political jitters.
Euro (EUR) Benefits after Moody’s Opts to Keep Stable Italian Government Credit Rating Outlook
In the wake of credit agency Moody’s unexpected decision to keep the outlook of the Italian government’s credit rating stable the mood towards the Euro (EUR) improved.
Although Moody’s still downgraded Italy’s rating the assessment proved more positive than markets had anticipated, giving EUR exchange rates support.
This helped to ease worries over the future of the Italian economy, even though markets remain wary of further developments surrounding the government’s controversial budget proposal.
If the European Commission rejects the budget this could see the Euro slump sharply, with Italian officials still looking unlikely to alter their plans in response to external pressure.
Without signs of a potential resolution to the issue the Pound Sterling to Euro (GBP/EUR) exchange rate could return to a stronger footing over the coming days.
Brexit Uncertainty Continues to Drag on Pound Sterling (GBP) Exchange Rates
Speculation over Brexit continued to drive volatility for the GBP/EUR exchange rate, meanwhile, as the odds of a deal fluctuated.
As Theresa May prepared to brief MPs on the progress of negotiations, reportedly ready to assert that 95% of the agreement is settled, demand for Pound Sterling (GBP) remained limited.
Investors still fear a potential leadership challenge against May as backbench Conservative MPs remain sceptical of proposals for a longer transition period and other details of the potential deal.
If May’s comments fail to win support GBP exchange rates look vulnerable to further downside pressure, with the uncertainty surrounding Brexit set to keep the Pound on the back foot for some time yet.
GBP/EUR Exchange Rate Vulnerable to Weakening UK Business Optimism
October’s CBI industrial trends and business optimism surveys may put additional pressure on the Pound on Tuesday.
Forecasts point towards a fresh decline in business sentiment on the month, with the index expected to dip from -3 to -4 as domestic confidence continued to deteriorate.
Given the elevated levels of uncertainty that still cloud the outlook of the UK economy any easing in business confidence is likely to dent GBP exchange rates.
On the other hand, signs of resilience in industrial orders could help to shore up the Pound this week, even in the face of lingering worries over Brexit.
Comments from Bank of England (BoE) Governor Mark Carney may also stir some GBP jitters if he adopts a more cautious tone on the subject of future monetary policy.
Solid Eurozone PMIs Could Encourage Further Euro (EUR) Exchange Rate Recovery
The Euro could get a fresh boost on Wednesday if October’s raft of Eurozone manufacturing and services PMIs prove encouraging.
Evidence that the Eurozone economy is continuing to grow may help the single currency extend its recovery further.
Any signs of a loss of momentum, though, could weigh down EUR exchange rates as hopes of growth returning to its 2016 levels fade.
If the currency union looks on track to post a weaker pace of economic growth in October this could give the Pound Sterling to Euro (GBP/EUR) exchange rate a leg up.
EUR exchange rates are also expected to come under pressure ahead of the European Central Bank’s (ECB) latest policy announcement, even though policymakers are not expected to deliver any change at this stage.