Italian politics will provide a key risk in the first quarter of 2013, UBS says, because support has increased for parties less committed to the reform path of prime minister Mario Monti, and opinion polls indicate that no single party would be able to gain a majority in the Italian parliament. "We believe that political fragmentation in Italy ahead of elections in March or April has the potential to trigger some instability in euro area bond markets in the first quarter next year," UBS says. The two most likely outcomes will be either a left-wing or a centre-left wing coalition government, with the latter seen as more likely to support and continue Monti's structural and fiscal reforms. EUR/USD is at 1.2897.
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