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Euro drifts lower while ECB remains in wait-and-see mode

The single currency sank amid high yields on Italy’s sovereign bonds and equity markets sold off as the IMF cut its global growth forecast.

Euro sensitive ahead of crunch Italian budget talks

The Euro fell to 1.1460 against the US Dollar yesterday, 8 October. The single currency has hit its lowest level in two months amid sky-high yields on Italian bonds.

Investors rushed to sell Italian assets in response to the protracted discussions with the European Union about Italy’s budget. The country’s stock market index, FTSE MIB, sank 2.4 per cent to its lowest level since April 2017 of 19,810.50.

Meanwhile, global growth might have plateaued, according to a report by the International Monetary Fund (IMF). The latest World Economic Outlook revealed the negative impact of persisting trade tensions and economic stress in emerging markets. As a result, the IMF has cut its forecast for global growth for the first time in more than two years.

Global stock markets have reflected the downbeat mood, with the UK’s FTSE 100 having dropped by nearly 1.2. per cent to 7,233 yesterday.

In the US, Federal Reserve (Fed) member James Bullard said that any further interest rate increases should be based on data, but that indicators were “looking good”. The US 10-year bond yield spiked to its highest level of 3.256 since 2011 yesterday, indicating more rate rises are likely in the near term.

Finally, amid rising global government bond yields, the European Central Bank (ECB) is still to set the time for its rate hike, according to Klaas Knot, the president of the Dutch central bank De Nederlandsche Bank (DNB). While the US is full steam ahead with its monetary policy tightening, the ECB remains in a wait-and-see mode. That is why it is little wonder the Euro continues to drift lower against the greenback.

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