Euro Below $1.30 Ahead of ECB Meeting

By Roger Baettig | March 04 2013 10:02 AM

The euro waned on Monday as the possibility of another Italian vote and a European Central Bank interest rate cut both became more likely. The common currency traded at 1.2996 at 11:04 GMT on Monday morning.

Reuters

The euro currency sign is seen in front of the European Central Bank headquarters in Frankfurt.

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After a week of confusion, the Italian government remained unknown and all three candidates continued to fight amongst themselves. Most recently, Pierre Luigi Bersani told Beppe Grillo to get on board with a temporary government or none of the candidates will take office.

According to Reuters, Grillo flatly rejected Bersani's offers to talk about an alliance last week and called Bersani a “dead man talking”. On Monday and Tuesday, Grillo is set to meet with President Giorgio Napolitano, who has the power to select prime ministers, about the formation of a government.

The lack of government in Italy has caused many to doubt the entire region's recovery. Some fear that the Italians' choice to vote for anti-austerity candidates could spread to some of the region's other struggling nations. Others are concerned that without a stable government, Italy will not follow through on the reforms needed to lower its debt.

The euro also fell under pressure from speculation that ECB leader Mario Draghi could cut interest rates at the bank's monthly meeting on Thursday. Poor manufacturing data as well as sky high unemployment could influence Draghi's decision and prompt a cut.

Although there is a lot of speculation around the upcoming decision, the general consensus is that the ECB will maintain the current rate. However, if the rate is maintained, Draghi's press conference following the meeting will be closely eyed for clues about a future cut.