Sterling appears to have taken its winter break early, with a day in the moguls wreaking havoc on Sterling currency pairs throughout the market. EURGBP, the true barometer of Brexit and the pair that has best reflected the true value of the Pound throughout the past few months, displayed considerable volatility throughout the day, with Brexit support proving sufficient enough to force the pair down to resistance at 0.875.
Italy published its budget proposal yesterday evening, forecasting a fiscal deficit equal to 2.4% of GDP for the next year and economic growth equal to 1.5%. Italy’s public deficit as a percentage of GDP has held largely steady at a little over 130% since 2014, however, it should come as no surprise that based upon these numbers, debt as a proportion of national income should deteriorate. Italy’s debt currently stands at 2.7 trillion US Dollars, towering above the sustainable level of debt implied by European treatises, at 60% of GDP. How the Union reacts to Italy’s proposal will be pivotal in determining a fair value for the Euro: too harsh and secessionist fears will hinder the single currency; too soft and fears of fiscal profligacy within the union will damage the risk profile of the currency union. As European heads of states head to Brussels for a pivotal summit, all eyes will be upon Brexit and the evolving political troubles present throughout Italy, Germany (Bavaria), and France (Macron’s Cabinet Shakedown).
The reversal of Council President, Donald Tusk’s, negative Brexit sentiment last night allowed Sterling to rise against the troubled Euro. Speaking once again on Twitter, the President appealed to all stakeholders, imploring each of them to “not give up”. The Dollar continued to suffer as global risk sentiment changed further amidst heightening focus upon Saudi Arabia. Gold and other safe havens rallied with the Dollar losing steam throughout the day.
Discussion and Analysis by Charles Porter