The Euro fell in Tuesday’s trading, before rebounding, as the political turmoil in Italy continues to weigh on the single currency.
The Euro found itself under renewed pressure following a speech by the prime minister of Italy’s new populist government, The speech increased the prospect of confrontation with the European Union over Italy’s economic policy.
Whilst the Euro has recovered a little since hitting a 10 month low last when the Italy political crisis first unraveled, the markets are displaying a lack of confidence in the situation, fearing the Italy political crisis will derail growth in the Eurozone and unsettle other member states.
Italian government bonds dropped whilst yields soared last week with markets alarmed over the constitutional crisis following President Sergio Mattarella rejection of a finance minister who has been critical of the single currency.
Whilst markets started to show a but of calm after the parties made alterations to their proposal in forming a government, the markets are concerned that plans to challenge European Union fiscal regulations could result in a confrontation in the not so distant future.
Within two hours of European markets opening, the Euro dropped 0.32% against the US Dollar to 1.1660. The single currency also fell against the Japanese Yen, down 0.34% to 128.00 within hours of the opening bell.
Helping to push the Euro lower was news that Euro zone business activity slowed again last month. The IHS Markit’s Final Composite Purchasing Managers’ Index, regarded as a good overall indicator of euro zone growth, dropped to an 18-month low of 54.1 last month from April ‘s reading of 55.1. Readings above 50 show expansion whilst readings below 50 indicate contraction.
Chris Williamson, chief business economist at IHS Markit said: “With the economic indicators turning down at the same time as political uncertainty has spiked higher, the euro zone’s outlook has darkened dramatically compared to the sunny forecast seen at the start of the year,”