Peter Lavelle at currency broker Pure FX
16.11.2011
The euro has weakened in the past week, as concerns that Italy cannot cut its huge debt prompt investors to flee to havens including the pound. Is this trend set to continue?
Change in the last 24 hours:
GBPEUR: 0.30%
Difference on £200k: €600
GBPUSD: 0.63%
Difference on £200k: $1260
EURUSD: 0.34%
Difference on €200k: $680
The pound has gained 3.14% against the euro in the past fortnight [equivalent to €4280 on a £200k transfer] on concerns about Italian debt.
Last weekend, the resignation of Silvio Berlusconi did not appease the markets, and at present new PM Mario Monti is struggling to gain support in the Italian parliament for his spending cuts program. Investors have abandoned the Eurozone, fleeing to so-called haven currencies including sterling given that, compared to Europe, Britain is in a quite stable position.
Is this trend set to continue?
In our view at Pure FX, it depends a great deal on whether PM Monti can create a credible program to slash Italian debt, and his success thereafter in implementing it.
To date, the problem has been that markets have not believed the Italian government has been serious about cutting its debt, prompting interest rates on government bonds to reach dangerous levels. For Monti to overcome this, he must both win support for his agenda inside the Italian parliament, and overcome the opposition of entrenched interest groups.
Is this possible?
Journalists at newspapers including The Economist suggest not. The correspondent in Newsbook argues that, though technocrats such as Monti are adapt at pure numbers, the challenges involved in negotiating interest groups and public perception require political skills. He suggests that the appointment of Economics PhDs such as Monti is a sign of desperation inside the Eurozone.
Should this prove true, and Monti prove ineffective in cutting Italian debt, the euro decline could continue then.
Find out more
The speed at which events are happening in the Eurozone means the rates are subject to sudden change at present. To find out about how latest events could affect an international transfer then, feel free to visit us at specialist foreign exchange broker Pure FX. We’d be glad to help however we can.