Politics Dampens Euro recovery
March 5th Highlights
- Italian vote adds to anti Euro concern
- Brexit concerns to remain prime Sterling driver
- Trade war still a concern for dollar
Stronger than expected showing for Anti-EU party
There is a disagreement between Forza Italia and its probable coalition partners over Euro membership. They see the time for leaving the Euro as having passed while the Northern League and Brothers of Italy are more hard-line in their views. Should this alliance be able to form a Government, radical demands on EU reform will be demanded and could spell the end, for a generation at least, of Emmanuel Macron’s plans for a more “Federal” European Union.
The doomsday scenario for Brussels would be calls for a “Brexit style” referendum.
Such an outcome is far from certain and depends on the final result of the election, but a more radical approach from Rome is not what Messrs Tusk and Juncker need at this juncture.
The Euro has opened a little lower this morning giving back some of the gains made on Friday. It has reached a low of 1.2298 although the buy orders close to 1.2260 should provide support until the election result is confirmed.
May fails to exert authority
In order to have something to “”test” to UK will have to continue to be reactive to Brussels demands rather than making its own proposals. It must be said that the comments of Michel Barnier and Donald Tusk that the UK is slowly closing every door on itself are starting to ring true.
The opposition Labour Party has put forward proposals, possibly in collusion with Brussels, that in addition to putting the final deal to Parliament and followed by a referendum on its contents, a general election should be the outcome of a negative decision by Parliament. This is blatant Party politicization of the issue and flies in the face of calls for a “free vote”.
The pound has fallen again as Brexit becomes more fractious and a hard Brexit becomes ever more possible. The Irish Border will become the major battleground with both sides unable to find a way to give ground on what is a most basic part of the negotiations. It reached 1.3718 last week before recovering a little although it has started the new week on the back foot and has so far made a low of 1.3778.
Trade war looms as Trump acts tough.
The latest sector to feel the effect of what is starting to look like protectionism is the car industry where he has threatened tariffs on imports from the EU.
As the world has reacted to global warming, a phenomenon that the President does not agree with, the U.S. has, rather that change its own output to more “green” vehicles, decided to import from the EU where a more socially acceptable methodology prevails.
Trump knows that he cannot force exports of vehicles to nations who find them environmentally unfriendly or uneconomical and is unable to force the U.S. car industry to change radically, so he reverts to “strong arm tactics under the guise of “America first”.
The dollar has reacted badly to such protectionist sentiments and the index has retreated towards its recent lows. It reached 89.88 on Friday although it has rallied a little overnight as the single currency has retreated on the back of the Italian election.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”