A few years back, the European debt crisis hit the "Piigs" with a resounding clout: Portugal, Italy, Ireland, Greece and Spain.
The European Union and the European Central Bank lent large sums to all these countries. As we all know, Greece have defaulted and remains in a perilous position. Ireland, and to a lesser extent Spain, have recovered and resumed growth, whilst Portugal and Italy have not. The Italian crisis is larger and more significant since it is a much larger economy than Portugal and Greece. There is much concern for the Eurozone banking sector, as capitalisation is needed urgently.
The highlight for the euro came on Monday when the leaders of France, Germany and Italy met on an aircraft carrier to exchange pleasantries and discuss the future of the EU. It was the euro's only newsworthy outing in a week of European Central Bank silence and unremarkable €Z economic data. Preliminary purchasing managers' index readings from Euroland pointed to continuing growth in the private sector despite slightly decreased business confidence.
The US dollar and British pound both did better than the euro this week, strengthening by half a cent and one cent respectively.
Whilst all news media appears to be centred upon the UK and Brexit, the events happening in the European Union (EU) are largely being ignored.
However, these EU events are far more serious to the global economy and the EU, which centres around Italy.
The country's banking system is swamped with debt and the Italian Prime Minister, Matteo Renzi, has called a referendum that could see him ousted from power, akin to David Cameron.
In a result that could have been awarded by an Olympics boxing judge the euro and its partner-in-crime, the Swiss franc, became the week's unlikely major currency winners. The euro did nothing to earn its victory, which owed more to it keeping its head down than to having delivered any obviously punishing blows. Over the seven days the euro strengthened by half a cent against sterling and added two US cents.
The US dollar index – a measure of the value of the US dollar relative to the value of a basket of the other most actively-traded currencies – fell to its lowest level since July 5th following the release of weaker-than-expected GDP data on Friday. The US advance second quarter GDP growth came in at 1.2 percent, below the expected 2.6 percent; leading investors to question the likelihood of a Federal Reserve interest rate increase this year.
After its hour in the sun during last Thursday's European Central Bank press conference the euro rather faded into the background. Friday's provisional purchasing managers' index readings from Germany and pan-Euroland were mostly better than forecast and IFO's survey of German companies found them more upbeat than expected. The same went for the EC's own confidence measures, which were all unchanged or better on the month. None made much difference to the currency.
Market Update - Global markets have now risen steadily across the board as the volatility spike following Britain’s surprise decision to leave the EU died down and investors realised that, although unexpected, the uncertainty of the terms of Britain’s future relationship with the EU need not undermine equity markets. As for the FTSE 100 it is now 5% above where it closed on 22nd June, though 6% down in terms of Dollar value (£ is 12% lower against the Dollar) and the FTSE 250 is only 3% below where it was on the same day. The FTSE 250 is a far better barometer of UK economic activity than FTSE 100 and many of the stocks that were hit hardest like the house builders such as Persimmon, Taylor Wimpey and Barratt made substantial gains as the new May government started to restore some stability.
There were more than a few shocks and surprises to unnerve investors, notably the attempted coup in Turkey and the International Monetary Fund's downgrade of its forecasts for global growth.
Investors had to choose between the euro's safe-haven qualities and its unwilling involvement in the Brexit showdown. They really could not make up their minds so the euro was on average just about unchanged against the other dozen most actively-traded currencies. It strengthened by three quarters of a cent against sterling and lost one US cent.