Euro weakens following Italian-political concerns
What’s been happening?
Pound Sterling – UK Markets
Sterling failed to gain support on Friday, following release of weak first quarter GDP figures. GBP against USD rate fell to five-month lows last week and more pain is likely to be in store this week. Sterling managed to hike back up above 1.3300 on Monday but remains under pressure falling 0.35% this morning to trade around 1.3265 against the US dollar, the lowest level since November last year. With no major data coming out of the UK this week that could potentially boost the GBP rate, a further decline in the Cable is very likely.
Sterling gained against the Euro early this week, as Eurozone concerns increased following growing political tensions in Italy. A healthy reading of 1.1467 marked a one month’s high for the GBP/EUR rate this morning.
The mounting risk of a bad Brexit deal for the city of London has been causing severe tensions between the Bank of England (BoE) and the Treasury last week. Concerns that Brussels will reject plans put forward by the chancellor, Philipp Hammond, for maintaining close ties with the EU for financial services have been weighing on the Pound’s ability to strengthen. The UK will remain at risk of a poor deal unless a “Plan B” arrangement is put together.
US Dollar – US Markets
The Federal Reserve's May meeting minutes released last week showed that the central bank may be willing to let inflation run a little higher than its 2% goal, allowing the USD to gain advances on key opponent currencies.
The US Dollar strengthened against its major opponents in the European session early this week, as geopolitical worries receded after the US President Donal Trump announced that positive talks between the US and North Korea have resumed. The US officials arrived in North Korea on the weekend to prepare for a proposed summit scheduled next month, which Trump had previously cancelled. "Our US team has arrived in North Korea to make arrangements for the Summit between Kim Jong Un and myself," Trump said in a tweet on Sunday afternoon.
Euro – European Markets
The Euro remained volatile last week, with information coming in that The European Central Bank (ECB) will not be ruling out an announcement of bond-purchase tapering at the June policy meeting. The Euro declined to 6-month lows of around 1.1510 against the US Dollar, prompted by a combination of German/Italian yield spreads widening to 4-year highs lower German yields.
Renewed political uncertainty surrounding Italy is causing fresh concerns for the Euro. Over the weekend, Italian President, Sergio Mattarella vetoed the appointment of Eurosceptic Paolo Savona as Economy Minister by the Liga/Five Star Movement, triggering a call for new election as early as August. As Italy prepares to head back to the polls, there is a likely chance that the two leading anti-establishment parties that won the last vote could increase their vote share in the rerun - an event that would put pressure on the European Union as well as the single currency.
What’s coming up?
UK: No major data coming out of the UK today. Tomorrow we will see the GfK Consumer Confidence data released. The GfK Group Consumer Confidence is a leading index that measures the level of consumer confidence in economic activity. A high level of consumer confidence stimulates economic expansion while a low-level drives to an economic downturn.
US: US markets are looking ahead to the preliminary first quarter Gross Domestic Product index and preliminary first quarter Core Personal Consumption Expenditures data coming out tomorrow.
EU: Markets will be looking at ECB speakers today. ECB executive board member Yves Mersch is delivering a keynote speech on "The Continental Perspective" at Frankfurt Finance Summit this morning. Which will be followed by ECB executive board member Sabine Lautenschläger’s speech named “Monetary policy – End of (hi) story?”.