May…we get an answer soon?4th October 2018
Yesterday was a tough day for the Euro. The biggest news was an Italian politician coming out and saying that the Italian fiscal problems would be solved if they were not part of the EU. Whilst he stated that this was not the intention of the government, it did the single currency and Italian bonds no favours.
A strong dollar, declining Italian and German yields meant that the Euro hit 1.1500 versus the dollar. EU PPI data came out quite positive, up by 0.3% MoM and 4.2% YoY, but this was not enough to divert attention away from problems in Italy. There has, however, been a recovery this morning during the Asian session but any gains were curbed below the 1.1600 mark.
Data today includes PMI figures out of Turkey, Spain, Italy, France, Germany and the EU itself. Not too much volatility is expected due to the Italian situation stealing all the limelight. Data has somewhat taken a backstage this week as markets nervously wait for statements out of Italy.
The Greenback is trading up this morning against most of its major peers except the safe-haven Japanese Yen and Swiss Francs.
Federal Reserve (FED) Chair Powell remained optimistic surrounding the economic outlook with gradual interest rate increases meant to balance risks. He did not expect a significant inflation rise, although the Fed was ready to act with authority if inflation expectations drift from the target. The overall rhetoric had a slightly hawkish tone with Powell signalling his willingness to act if inflation rises and the comments provided some dollar support, although the overall reaction was muted.
Across the pond, the labour market will come to the fore in light of the release of the ADP report, while the key ISM Non-manufacturing will also grab attention.
The GBP/USD pair is trading 0.5% lower on the day as local politics and Brexit weigh on investors’ sentiment. PM May is hoping to survive a possible challenge to her leadership at the ongoing Conservative Party’s annual conference. This is a major test for the UK government which faces opposition to its Chequers plan at home and among the EU circle.
The UK PMI construction index declined to 52.1 for September from 52.9 and slightly below consensus forecasts. The overall report was mixed with a decline in business optimism offset by a faster rate of growth in new orders while prices increased. European Commission President Juncker stated that the EU wanted a deal, but markets were fixated on internal Conservative Party tensions. Former Foreign Secretary Johnson continued to attack the government’s Chequers Brexit plan which continued to unsettle the UK currency.
Sterling rested just under the 1.3000 level on Wednesday with markets waiting for the services PMI index and Prime Minister May’s important speech to the Conservative Party conference later today.
Data to watch:
08:00 EUR Markit Services PMI (Sep)
08:00 EUR Markit PMI Composite (Sep)
08:30 GBP Markit Services PMI (Sep)
12:15 USD ADP Employment Change (Sep)
13:45 USD Markit Services PMI (Sep)
13:45 USD Markit PMI Composite (Sep)
14:00 USD ISM Non-Manufacturing PMI (Sep)
18:15 USD FOMC Member Mester speech