Italian Budget could cause the Euro to weaken against the Pound

Sterling vs Euro Rises as UK Job Market Outperforms

The Pound has remained in a fairly tight range against the Euro recently as the Brexit news has stalled and this has caused investors to remain cautious on GBPEUR exchange rates. However, the recent news story coming out of Italy is that they have had their credit rating downgraded by Moody’s at the end of last week.

The European Commission has now told Italy that it must revise its current planned budget which is the first time in history that they have intervened.

Italy is the third largest economy within the Eurozone behind Germany and France and with the current party planning excessive spending according to the EC they have been warned that they must change their plans.

The current statement is that they have now been given three weeks to change their plans.

The Italian government has committed to ‘end poverty’ by increasing the assistance given to the unemployed as well as cutting taxation. Some of these ideas were put forward at the time of the elections and they have remained committed to what they pledged previously. The problem for the country is that they are unable to afford to go ahead with what they want as this will substantially increase their deficit.

During 2017 Italian debt was as much as 131% of GDP and the only country in the Eurozone in a worse situation is Greece.

As yet the Euro has not been affected negatively but I think it is only a matter of time before this particular story gathers pace and this is reflected in the value of the Euro against the Pound.

On Thursday the European Central Bank will announce their latest monetary policy statement and any signs as to what they are moving towards in terms of policy is likely to affect GBPEUR exchange rates so make sure you’re well prepared for further exchange rate movement if you’re planning a currency transfer in the short term.

If you have a currency transfer to make it’s always a good idea to consider your options. Feel free to use the form below to get in touch with me directly. I’ll be happy to respond personally and discuss the factors likely to impact exchange rates in the weeks ahead.