Should You Sell or Buy Euro Ahead of Italian Elections?

  • Italian politics might weigh on the Euro.
  • The ECB won’t purchase Italian bonds.
  • The common currency stays resilient, losing grounds primarily against the United States dollar.

Europe faces challenges this fall. First and foremost, the Eurozone economies endured the impacts of the Ukrainian war and the several economic sanctions that accompanied it. A recession appears inevitable in the coming months.

Secondly, the war intensified this week. The updates that Russia declared its reservists’ mobilization had the common currency slumping across the FX board. Thirdly, inflation stays distressingly high. Thus, the ECB (European Central Bank) will have no option but to increase rates further, destroying economic activity.

If all the mentioned wasn’t enough, Italy awaits elections next weekend, and the events could move the Euro. Opinion polls suggest a victory for the center coalition, though the far-right leader, Giorgia Meloni, will take on the leadership. Meantime, what will the common currency do amidst several headwinds?

Political Risks Weighing on the Euro

The ECB’s bond-purchasing program helped to ensure narrow Italian spreads. Nonetheless, the political risk led to an orderly widening as election day approached. Nevertheless, the European Central Bank will not purchase Italian bonds forever.

Market tales suggest that the bank will confirm the start of the QT (quantitative tightening) program during the October conference. That translated to selling bonds on its holdings. Thus, the central bank won’t be around to close spreads further.

Political Worries Used to Hinder Euro: Not Anymore

Despite the pessimistic case highlighted above, the Euro holds relatively well. The currency gained against GBP this year, and with the exclusion of the United States dollar, it stays resilient. Again, the United States dollar remains steady across the Forex board.

Meanwhile, Europe didn’t trigger that, but United States factors like faster Fed hikes. The risk remains that the Euro will move from beneath parity. The currency has massive woes that the Italian politics and market players should consider responses to in the opposite direction.

What are your thoughts about the current Europe economic outlook? Feel free to leave a reply in the comment area below.