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EUR/USD Trades at 10-Month Lows on Italian Political Crisis

May 29, 2018 at 18:00 by Simon Mugo

Counting 50-euro billsThe EUR/USD currency pair today dropped to new 10-month lows following political turmoil in Italy where a new election is likely to happen as early as July. Investors dumped the euro as Italian bond yields rose to new highs, which increased the yield spread between the German and Italian 2-year bonds.

The EUR/USD currency pair today dropped from a high of 1.1639 to a fresh 2018 low of 1.1510 and was on a downtrend at the time of writing.

The political uncertainty in Europe’s fourth-largest economy has rattled investors hence driving the yield on Italy’s 2-year bonds above 2%. This creates a major problem for the Italian government as it increases the cost of borrowing, which could cause the country to default on its debts. The pair briefly recovered after it emerged that the 5 Star Movement did not want to pull Italy out of the EU. Italian President Sergio Mattarella appointed Carlo Cottarelli as interim Prime Minister to spearhead fresh elections. Many analysts and even successful investor George Soros are predicting that a major crisis might engulf the Eurozone due to the Italian political crisis.

The political problems in Italy were further compounded by the uncertain political situation in Spain where Prime Minister Mariano Rajoy might be facing a vote of no confidence later this week.

The currency pair’s future performance is likely to be influenced by tomorrow’s German unemployment data, French GDP data, and US GDP data as well as the political events in Spain and Italy.

The EUR/USD currency pair was trading at 1.1541 as at 17:53 GMT having declined from a high of 1.1639. The EUR/JPY currency was trading at 125.28 having dropped from a high of 127.19.

If you have any questions, comments or opinions regarding the Euro, feel free to post them using the commentary form below.

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