Political Uncertainty Likely to Dominate GBP/EUR Next Week
The Pound Euro (GBP/EUR) exchange rate is likely to fluctuate in the coming session as market focus turns to the upcoming Italian election.
At the time of writing GBP/EUR is up by around 0.3% this morning, with the pairing striking a new two-week high.
Italian Election to Prompt Euro (EUR) Volatility?
The Euro may face some volatility in next week’s session, in the run up to Italy’s general election on the 4th March.
What is most likely to hold down the single currency down is that even this close to the vote it is hard to judge who will form the next government, with markets disliking any kind of political uncertainty.
Current polls suggest that the election is a tight run race between Silvio Berlusconi’s Forza Italia, the incumbent Democratic Party and the anti-establishment 5 Star Movement.
While both Forza Italia and the 5 Star Movement no longer call for Italy to leave the Euro, the underlying Euroscepticism within both parties is likely to concern many EUR investors.
While this election is not seen as quite as impactful as last year’s French or German election, it is still likely to prompt the Euro exchange rate to fluctuate especially with a high chance of the vote resulting in a hung parliament.
Sterling’s (GBP) May Stumble as Government Faces Possible Brexit Defeat
At the same time the Pound may struggle next week as Theresa May face a possible defeat in the House of Commons.
Recent reports suggest that Labour Leader, Jeremy Corbyn may back a rebel Tory amendment to the PM’s Brexit speech on Monday, which would seek to keep the UK within the EU customs union.
While remaining within the EU’s customs union would generally be welcomed by markets who favour a softer approach to Brexit, it would also derail the government’s current plans.
Such a defeat could also open May up to criticism from within her own party, possibly prompting doubts over the stability of her leadership once again.
GBP/EUR Forecast: German Inflation to Slide?
Looking ahead to next week’s session in terms of data the GBP/EUR exchange rate may strengthen as Germany publishes its latest CPI figures.
Economists forecast that data will show that Germany’s inflation rate slowed from 1.6% to 1.5% in February.
Meanwhile GBP investors will look to next week’s PMI figures from the UK to gauge movement in Sterling, with the Pound exchange rate likely to tumble if activity continues to slow in either the manufacturing or construction sectors.