Italian turmoil takes center stage

Market attention has quickly moved from Greece to Italy, as traders remain wary, following a rise in Italian bond yields, and ahead of the key budget vote later today. Investors are also keeping a close eye on other news flow from the Eurozone, as Greece struggles to pick a new leader for the national unity government, and Eurozone finance ministers meet in Brussels to discuss the region’s ongoing financial crisis. Despite downbeat economic data in the UK, we believe that the current political turmoil in the Eurozone is likely to benefit Sterling against the Euro in the near term.

Pound Sterling – UK Markets

Sterling is trading higher against the Euro, this morning, amid looming concern over the Italian budget vote later today. The Pound traded weak against the US Dollar, earlier today, as weak economic data in the UK heightened concern about the country’s growth outlook. Data indicated that retail sales and house price balance index in the UK declined in October. The UK industrial and manufacturing production data slated for release today, is expected to have little impact on the Sterling’s movement. Meanwhile, the National Institute for Economic and Social Research, which had earlier indicated that there is 50% risk of the UK slipping back into recession, is scheduled to provide its Gross Domestic Product estimate later today.

US Dollar – US Markets

The USD is highly volatile against Sterling and the Euro, this morning, amid uncertainty about the political situation in Italy and Greece. Meanwhile, Dallas Federal Reserve Bank President, Richard Fisher, has stated that his support for the central bank’s decision to continue efforts to bring down borrowing costs does not mean that he backs further monetary easing. With the US economic calendar on the light side, we expect the US Dollar to be volatile against the majors in the near term, and take further cues from the events unfolding from the political situation in Italy and Greece.

Euro – European Markets

The Euro has pared its losses and is trading marginally higher against the US Dollar, this morning, after data showed an unexpected rise in German exports in September. Earlier in the session, the Euro was under pressure against the US Dollar, amid uncertainty ahead of the crucial Parliamentary budget vote in Italy later today. With Greece still struggling to appoint a new head for the government, in a significant development late yesterday, Jean-Claude Juncker, the head of the European Union, has urged the nation to provide a written acceptance to the bailout terms, in order to secure a €8.0 billion loan installment. The Euro is likely to find further direction against the majors from the events unfolding in Italy and Greece.

Other Currencies – Highlights

The Australian Dollar is weak against the major currencies in trading today, after data indicated that Australian trade surplus narrowed more-than-expected in September, hinting that the slowdown in the European nations is having an impact on the Australian economy. Additionally, data from the National Australia Bank has revealed that business conditions in Australia have deteriorated in October. We expect the Australian Dollar to trade weak against the majors, as concerns about political instability in Greece and Italy have fuelled market speculation that the debt crisis in Europe is worsening.