Forex Flash: Euro stabilises after verbal intervension from ECB – BTMU

Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the Euro has stabilized at lower levels following last week’s verbal intervention from ECB President Draghi which was a subtle attempt to dampen the pace of Euro appreciation in the near-term.

The easing of Euro upward momentum has also coincided with a re-widening of the Eurozone sovereign credit risk premium as political uncertainty has increased in Italy and Spain. The final public opinion polls heading into the Italian elections on the 24th and 25th February revealed that Democratic Party leader Bersani remains on course to win the elections with an outright majority in the Chamber of Deputies holding a 6 percentage point lead

However, Hardman notes that Bersani’s party is likely to fall short of a Senate majority which could force him to form a coalition government with the Monti-led centrist parties. He sees that the main downside risk for the Euro is that the polls are underestimating support for Berlusconi’s People of Freedom Party. Today’s Euro Area Finance Ministers meeting is expected to discuss Cyprus and Greece. He finishes by writing, “Elsewhere the Pound is regaining lost ground following last week’s less dovish testimony from next BoE Governor Carney which has prompting a paring back of more aggressive easing expectations.”