Eurozone: German and Italian politics unlikely to rattle EUR- Westpac

Germany’s SPD’s coalition vote and Italy’s general election are unlikely to rattle EUR, according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Dislocating risks are really marginal outliers. SPD’s popular new leader Nahles is procoalition: a shock “No” vote is very unlikely. Italy’s complex new electoral system will probably lead to prolonged coalition (centreright with centre-left but excluding 5 Star) negotiations. Dropping of anti-euro stances by all major parties means that an unlikely 5-Star victory would not trigger existential issues for EUR, but would rock confidence.”

“Next week’s German labour cost data will be key ahead of both ECB and German pay discussions, but underemployment is still capping wages. The lack of any uptrend in Feb CPI reduces pressure on ECB to alter guidance, though markets expect downside risks to be reduced or dropped on 8th Mar.”

“USD is the near term driver of EUR/USD, but despite a lack of inflation pressures, EU activity data remains supportive for EUR.”