Problems within the Eurozone: Euro close to 2 year lows against the Dollar
The euro currently sits close to a two year low against the US dollar, yet GBP/EUR rates remains anchored in the 1.11s. The euro has its own troubles such as terrible inflation data and the Italian debt situation. Italian debt is now larger than GDP and Brussels have threatened to impose a €3bln fine on Italy if there is not a solid debt recovery plan put in place.
Italian debt higher than GDP
This situation should not be underestimated, if we look at the Greek debt crisis a decade ago it caused volatility on the markets. Italy’s economy is 10 times the size of Greece and is currently the eight largest economy in the world. I am not convinced however the Italian debt situation will get the full attention it deserves until later in the year.
UK political uncertainty weighs on Sterling
Sterling remains fragile against the majority of major currencies due to the UK having no PM and a lack of clarity surrounding Brexit. Boris is currently the front runner to become the new PM and he has stated he will bring a no deal scenario back to the table in order to negotiate a better Brexit deal with Brussels.
Pound to Euro forecast
This does not bode well for sterling; the general consensus is the higher the probability of a no deal the weaker the pound will become. I am afraid short to medium term I find very little justification for a significant sterling rally. Something that highlights the problems with the pound is how the Euro is fairing against other currencies.
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