The euro’s high-stakes Italian test. Italy’s political crisis has eased after the Five Star Movement and the Northern League formed a new government. Spreads of Italian government bonds over German Bunds remain elevated albeit down from their previous peaks and EURUSD has stabilized at around 1.17. Time to pop open the prosecco and celebrate? Our commentary.
The macro perspective
Decreasing momentum. A further acceleration in economic growth is still in the cards, although leading indicators now also suggest that growth momentum is slackening. At the same time, inflation is rising a bit faster in the US and Europe. Against the backdrop of increasingly strained political developments, a slight chill is in the air as summer begins. An overview.
FX market talk
Survival of the euro (again). We had not expected to revisit the question of the survival of the euro so soon after the last crisis. As long as the Italian government wants to do “whatever is necessary” to remain in the Eurozone, it will find political support from the other member states. Our conclusion of the euro.