The euro has weakened this morning and is set to post its second-biggest weekly loss in nearly four months as investors trim positions before a big week for global currency markets from a European politics perspective.
The outcome of the Italian general election is due on March 4 and the German Social Democrats poll of its members on joining another coalition government with Chancellor Merkel’s conservatives is also due that day, both events which may trigger fresh market volatility.
Despite sterling’s weakness this week, it is still up nearly 3 percent against the dollar this year as investors have ramped up bets that the Bank of England may raise interest rates more than previously forecast.
The currency has also come under pressure as a debate on the UK’s Brexit strategy intensified before a meeting of EU leaders on March 22-23, when the bloc’s leaders may or may not agree to a transition period following Britain’s scheduled departure from the EU in March 2019.
On Thursday, the European Union said it would not agree to a post-Brexit deal in which Britain would stick to the bloc’s rules in some areas, diverge moderately in others and go for distinctively different solutions for the rest.