After a rough two weeks during which the euro gave in to pressure by stronger currencies, today it is set to make its biggest gains in a while.
This is largely due to the political developments in Italy. For many months the leading Italian parties, none of which won with a clear majority at the last elections, have been trying to form a government. In the past few weeks supposedly a coalition was going to be formed between the League and 5-Star parties, which are both perceived as eurosceptics. Had they formed a government, there would have been further speculation about Italy’s position in the European Union. However, they failed to agree in the end, which is a positive for the euro. Italy is expected to get an interim government and schedule a new round of elections in order to resolve the current situation.
Nevertheless, whatever boost the euro might be enjoying now is most probably temporary. It remains true that inflation throughout the eurozone is lagging behind forecasts and economic growth is not happening at the desired rate. Since this is contrary to the situation in the United States, we expect the euro to continue to relax versus the USD.
