The euro fell yesterday as concerns grew that an unclear outcome in Italy’s elections could hamper the country’s effort to implement economic reforms.
The euro closed down on the day against all major currencies, including the British pound. The depreciation vis-a-vis sterling yesterday came despite the credit ratings agency Moody’s stripping the UK of its AAA status.
While sterling weakened sharply over most of the day, it rebounded very strongly in the afternoon as exit poll figures came from Italy. A British pound bought just under €1.15 at close of business yesterday, slightly more than at the start of the day.
The strength of the euro vis-a-vis sterling reduces the competitiveness of Irish companies which export to Britain.
The sell-off of the euro began when it emerged after the first projections that the centre-right coalition led by former prime minister Silvio Berlusconi was leading in the race for the Italian senate, dashing early hopes of a pro-reforms centre-left victory.
A victory by the centre-right coalition could cause instability in one of the euro zone’s largest economies as Italy copes with a deep recession and weak growth.
Meanwhile, Britain’s chancellor said yesterday that his government was committed to not targeting specific levels for its currency.
Asked in parliament about the impact on the pound of a downgrade of Britain’s credit rating, George Osborne recalled a recent statement by the Group of Seven economies, which Britain chairs.
“The G7 issued a very clear statement that we are not targeting an exchange rate. An exchange rate flows from the economic policies we pursue at home to improve our domestic economies.”
– Additional reporting Reuters
