Eurozone Politics Bring Down the Currency
The euro dipped on Tuesday morning as political uncertainty in some of the eurozone's most fragile economies caused investors to hesitate. The common currency traded at 1.3474 on Tuesday morning.
The euro has been climbing over the past week as the region recovered and investor confidence improved. However, on Monday the tone changed a bit as Italian and Spanish politics caused many to worry about the fate of two of the most fragile economies in the region.
Optimism that the region was stabilizing was quashed when investors sold off Italian and Spanish government bonds and stocks ahead of upcoming elections and a political scandal.
Spanish Prime Minister Mariano Rajoy has been indicated in a corruption scandal involving illegal government payouts. Rajoy is denying the allegations, but his opponents are calling for his resignation.
Investors became wary of Italy's upcoming elections at the end of February after former Prime Minister Silvio Berlusconi pulled forward in the polls. Berlusconi has gained popularity by promising to refund unpopular tax hikes imposed by Mario Monti in an effort to curb the country's deficit.
Berlusconi, who resigned in 2011 amid soaring bond yields and unruly protests, is not well liked by investors because his political track record doesn't speak for his capability to keep Italy on the path to recovery.
According to According to Reuters, the euro's dip doesn't mean the region's recovery has derailed. Many are expecting to see the euro rise and fall over the course of the year as fragile countries surface with problems.
After the currency made a massive jump on the idea that the worst is over for the region, the currency will readjust to a more realistic value. Some analysts believe the readjustment could take the currency near $1.32, but aren't expecting investors to go short on the euro as they did in the past.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.