How could the Italy situation affect GBPEUR?

Yesterday we saw the GBP/EUR rate rise to €1.15 due to the political situation developing in Italy. This morning however, rates have come back down to around the €1.1430 mark. This is due to strong Retail Sales data from Germany, coupled with hopes of a more conciliatory outcome in Italy, helping the Euro to bounce back. In today’s post we’ll take a detailed look at what’s happening in Italy, and how developments there could affect the Pound/Euro rate in the coming months.

Italy political crisis threatens Euro

There is great worry in financial markets across the globe about what’s happening in Italy. It could ultimately threaten Italy’s place in the EU. Italy is the EU’s 3rd largest economy behind Germany and France, so what is happening there is important for the EU, and the value of the Euro. Ultimately we think it’s likely that there will have to be fresh elections in Italy later this year, and this could deliver a strong mandate for Eurosceptic parties to win and form a government.

Two Eurosceptic parties have been trying to form a government for several months after elections in March. However, the country’s president has decided to place a pro-EU ex IMF man as Prime Minister, stating that they shouldn’t have someone in the role that could provoke Italy’s exit from the EU. This has led to fury amongst voters who overwhelmingly voted for anti-EU parties. We now think that elections will happen in July, and it could increase the chance of an anti-EU government being formed. There is also the possibility of an EU referendum, which of course is being dubbed ‘Quitaly’ in the press.

Could Italy leave the EU?

Ultimately, I don’t think this will happen. The vast majority of voters in Italy want to keep the Euro. However there are risks for the currency markets. After Brexit, the EU has a gaping €14bn hole in its budget. Markets understandably have concerns and this does have the potential to weaken the Euro.

However, the GBP/EUR rate in my view is unlikely to increase much from the its recent range of €1.13 – €1.15. There are still far too many unknowns regarding Brexit that is keeping the Pound in check against the Euro and other currencies.

Do you need to buy Euros at the best exchange rate?

What the Italian crisis does present however, is an opportunity to buy Euros at higher levels than we have seen of late. If you need to make a large transfer and would like to discuss how we can help you get the best exchange rates, make a free enquiry today. The brokerage group I work for has an annual turnover of £7bn and is fully FCA authorised. We should have no problem providing the most competitive rate of exchange. Even if you already use another broker, there’s no harm in getting a quick quote to see how we compare.

 

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