Inside the Hourglass,
Sovereign states must increasingly feel as though their countries are built upon the bedrock of the sand in a rapidly shrinking hourglass; assuming a position in an ever-collapsing pool, occasionally colliding with each other and frequently going under. Today was the turn of Euro to take a turn for the worse. Markets reacted badly to Italy’s delay in publishing their fiscal spending plan yesterday. Selling Italian assets instruments in their billions, equity markets tumbled with bond yields hitting fresh highs. The Euro was also hampered by the perceived political risk within Italy, allowing the value of the Euro against the Dollar to fall through 1.17. With the announcement that the budget deficit will now only be curtailed to 2.4% (instead of a promised 1.9%), the Euro lost further value with a loss of value equivalent to 1.84% in 48 hours. The revised fiscal expansion by the newly formed coalition suggested to markets that the more dominant League party was succumbing to populist pressure rebelling against the Eurozone’s bias towards austerity and fiscal responsibility. With EURUSD breaking below 1.16 once again, the value of 1 Pound against the Dollar also dropped bearishly towards 1.3000. Considerable resistance was found at this level, forcing a sharp and immediate devaluation of the US Dollar. For now, the drama in Italy still appears largely contained within the borders of the Mediterranean, stopping short of the rest of mainland Europe. This is apparent whilst domestic bonds rally and the stock market loses as much as 4% on the day. However, the risk of contagion cannot be continually underplayed as it was post-Brexit. If Italy falls in either direction, it could still spell disaster for the Eurozone.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Onto June A slew of strong US economic data over recent weeks had boosted expectations for how the culmination of the Fed’s two-day meeting would be presented to the public last night. The story goes back further. The narrative dominant in late-2023 of a US economy in need of restrictive monetary policy was unavoidable. The […]
Germany and the EU The Germany Supply Chain Act came into force in 2023 as a result of Germans wanting to do something good for employees in other countries in particular with respect to human rights and environmental issues. So far so good. But a combination of cost and bureaucracy overlaid with the difficulty of […]
Emergency Stop In the early hours of trading on Monday morning, sudden and significant buying pressure within USDJPY has markets wondering: is this the signal that local authorities are taking another stab at active market intervention? In a critical week for FX, with central bank decisions and a slew of top-level economic data from across […]