Uncertain Italian Election Result Sends Pound Euro Exchange Rate (GBP EUR) Sharply Higher Overnight

Published: Tuesday, 26 February 2013 09:00 BST - Written by Tim Boyer

STORY LINK Uncertain Italian Election Result Sends Pound Euro Exchange Rate (GBP EUR) Sharply Higher Overnight

It is tempting to liken yesterday’s price action for the Pound Euro exchange rate (currency : GBP EUR) to that of the proverbial roller-coaster. Hover, any such metaphor would not be doing the massive lurch which the pair experienced a severe injustice.

The Pound started yesterday heavily under the cosh following Moody’s announcement just before Friday night’s global currency market close that it was set to strip the UK of its highly-valued AAA credit rating. The market didn’t give its full verdict on the news in the 28 minutes between Friday’s announcement and the weekly market shut-down. That was left until Monday’s Asian session got underway. The sharp shift lower for Sterling culminated in a downward move to a new 16-month low at 1.1344 for GBP EUR during the middle part of yesterday’s European session.

However, the strong break lower rapidly reversed yesterday afternoon, as voting drew to a close in Italy’s general election. Exit polls, released shortly afterwards, revealed a hugely muddled picture, suggesting that erstwhile Premier Silvio Berlusconi’s centre-right party had wrested control of the nation’s upper house, while the centre-left might gain control of the lower House of Deputies. Many analysts suggested that the most likely outcome of the election would be another election, leading to an extended period of political in-fighting and horse-trading. One thing appears certain – none of the parties which have performed well in the popular vote have expressed any strong desire to follow-through with the austerity measures which Mario Monti’s technocratic government had been pushing through.

The market’s reaction to the news from Italy was pronounced; last night’s Asian session saw Tokyo’s Nikkei 225 lose 2.26% of its value. The UK’s FTSE 100 is currently trading down by well over 1%, while Frankfurt’s benchmark Dax index has given up almost 2% of its value already today. The shift out of risk threatens to send the safe-haven US Dollar stronger when New York opens, while the risk-sensitive Australian and New Zealand Dollars remain firmly in the ‘at risk’ category.

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