Forex Flash: EUR continues to drift modestly - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi notes that the euro is continuing to drift modestly higher after the new grand coalition government in Italy won votes on confidence yesterday in parliament.

He sees that Investor confidence in euro-zone sovereign debt continues to improve with the 10YR Italian government bond yield having fallen back below 4.00%. New Prime Minister Letta laid out his political agenda yesterday planning to introduce more growth friendly policies. He has already pledged to cancel planned tax increases totalling EUR6.0 billion. Hardman continues to add that the planned first instalment in June of the housing tax has been cancelled alongside the planned increase in VAT which was due in July. He writes, “PM Letta is also due to visit Berlin, Brussels and Paris this week to meet political leaders where he may also make the case for the need for more growth friendly policies.” Hardman feels that the ongoing decline in the euro-zone sovereign credit risk premium will help ease overall monetary conditions while building disinflationary pressures are creating scope for the ECB to ease monetary policy further to support growth. He believes that a weaker euro would also be beneficial but will likely require more aggressive ECB easing ahead.