The European Single Currency, euro was headed on Friday, May 18, for its fifth successive weekly plunge versus the dollar, in what would be a first for the currency since 2015, as political uncertainty in Italy worried investors.
The euro has slumped six cents from more than $1.24 in the space of three weeks after a huge dollar rally and amid concerns about the demands of populist parties likely to form Italy’s next government.
The far-right League and 5-Star Movement have agreed on a governing accord that would slash taxes and ramp up welfare spending.
Ratings agency DBRS warned on Thursday that the economic proposals of the anti-establishment parties could threaten Italy’s sovereign credit rating.
The euro on Friday hovered near a five-month low of $1.1763. It has declined nearly 1.2 percent versus the dollar this week and fallen sharply against the Swiss franc, which typically attracts capital in times of uncertainty.
“The possibility of a eurosceptic government in Rome is shaking investor confidence … at this point a larger fiscal deficit and greater bond issuance [in Italy] does seem likely,” said David Madden, a strategist at CMC Markets.
A founding member of the EU and the euro, Italy accounts for 15.4 percent of Eurozone GDP and the parties’ hostility toward the European Union stance is the biggest challenge to the bloc since Britain voted to leave two years ago.
Still, some investors have played down the broader impact on the euro and questioned whether the Italian parties will really follow through on such plans.
Only five percent of Italian government bonds are held by non-EU residents, making the chances of a massive flight of capital unlikely.
