The Breakfast Briefing A year ago this week, the election of French President Emmanuel Macron eased concerns about rising political instability in Europe, and helped clear the way for a monthslong euro rally. So much for that. The euro is sliding again, down 3.4% against the dollar over the past month and 1.2% for the year. On Tuesday, one euro bought $1.19, the lowest amount since December. The weakness comes as investors fret over the possibility of a new Italian election and a string of weak economic data. Citigroup’s economic surprise index for Europe has plunged recently to its lowest level since 2009, according to FactSet data. The index tracks how European data is coming in compared with analyst expectations. Data from German factory orders to European inflation readings have come in below forecasts lately. Eurozone growth slowed to 1.7% in the first three months of the year after rising 2.3% last year. It’s unclear if the recent disappointing data are a blip or the start of a bigger downturn for the European economy. The shift in expectations for European growth comes after last year’s rebound, which caught many off guard and helped send the euro up 14% against the greenback in 2017. Euro investors had also been encouraged last year by the May election of Mr. Macron, who beat out a far-right candidate who had threatened to pull the country out of the European Union. Fears over political instability and rising anti-euro sentiment are resurfacing now as Italy moves closer to new national elections. The country’s president hasn’t been able to unite parties to form a new government since March’s election led to a hung parliament. At the same time, hedge funds and other money managers are still holding roughly $18 billion in bullish euro bets, according to Scotiabank data. Investors could be forced to unwind those bets en masse if political or economic concerns deepen. Add that to the growing list of risks for newly-volatile currency markets. What is your outlook on Europe? Let the author know your thoughts at chelsey.dulaney@wsj.com. |