EUR/USD: Italy’s political drama to keep euro under pressure – MUFG

The EUR/USD break of parity was more compelling yesterday with a low of 0.9952 before recovering quickly. As economists at MUFG Bank note, EUR sentiment remains poor and political uncertainty in Italy is now set to reinforce that negative sentiment. 

Italy and China add to EUR woes 

“The 10-year BTP/Bund spread widened out by about 7 bps only but we could see further widening into the weekend which will only add to EUR downside pressure.” 

“The developments in Italy only underline the importance of the periphery bonds buying support program that the ECB intends to announce the details of next week. Given the likely increased BTP selling pressures, the risk next week could well be one of disappointment given the probable divisions within the Governing Council over the scale of the support program.” 

“EUR sentiment today will not be helped by the data released from China earlier. Real GDP slowed sharply in Q2 to 0.4% QoQ, much weaker than the consensus 1.2%. The 5.5% GDP growth target for 2022 is now out of reach and even getting a print of 4.0% will prove challenging. Global growth recession fears will remain elevated which will keep EUR/USD under downward pressure.”