After a 6-week losing streak, the euro found solid support from the visit of Germany’s Chancellor to China. Angela Merkel met China’s Premier of the State Council Li Keqiang who confirmed Beijing’s readiness to invest in the single European currency and buy the European bonds. “The euro is an important choice in our foreign currency reserves, and so we are continuing to buy European debt. Even when certain European countries had sovereign debt crises, China kept the broader picture in mind,” the head of China’s government expressed the official rhetoric.
In other words, one of the largest players in financial markets gave the vote of confidence both to the euro and the European debt. No wonder, the euro rebounded from a six-month low in light of such remarks from China’s Premier. Nevertheless, China’s support is not enough for the euro to regain recent losses. The single European currency has been weighed down by political tension and a slowdown in economic growth of the euro area. A series of downbeat economic data and protectionist statements from the new coalition government in Italy are bearish for the euro. Sluggish economic growth is viewed by most analysts as a temporary phase. However, the first populist government in Italy has dealt a blow to the euro.
Italy stands for termination of the pension reform, which has been settled earlier. Besides, the euro-skeptic government calls on the EU lawmakers to relax deficit rules. If Italy pursues a policy of cutting taxes and increasing public expenditures, this could spark off a new crisis in Europe. Investors are discouraged by this scenario, thus expressing negative sentiment on the euro.
