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The euro recovers as Italy concerns fade.

By Jake Trask

GBP/USD regained the 1.33 handle overnight as concerns over Italy’s political impasse started to fade. It’s been a quiet week data and Brexit-wise for the pound however we finally get something to report on this morning with Net Lending to Individuals expected to rise from £4.2B to £5.2B m/m. Top tier data kicks off tomorrow with Manufacturing PMI numbers with a small decline from 53.9 to 53.5 predicted. Recent comments from Mark Carney re: a soft patch the UK economy is going through mean data will come under extra scrutiny, especially next Tuesdays Services PMI. Cable currently hovers around 1.33.

The greenback has fallen away over recent days as fears over Italian politics fade and risk returns to the markets. EUR/USD which got close to falling through 1.15 has since rallied and is now heading to 1.17 as I write. Yesterday’s data from the States was a little weak with both notable releases falling short of expectations. The ADP Non-Farm Employment Change figure was 178k vs expected 191k and the second estimate of GDP for Q1 saw a slight downward revision to 2.2% y/y from 2.3%. These underweight readings added some extra downward pressure to the dollar and increased risk appetite throughout the afternoon. Today there is a slew of mid-tier releases including Core PCE Price Index m/m; Personal Spending m/m; Unemployment Claims as well as FOMC members Bostic and Brainard giving speeches. With relative calm returning to world markets all eyes will now turn to tomorrows US Jobs Report.

Relief was sighed throughout Europe and the wider world as Italy’s latest bond auction was well received by investors with 10 year debt yielding 3% and the bid to cover ratio at 1.5. Although the yields were the highest in four years it was in line with the secondary market and the bid to cover was actually a higher than the last auction highlighting good demand and confidence from investors. Today sees May’s Flash CPI data from the EZ with the overall reading expected to rise to 1.6% and the core number expected to move up to 1.0%. We could see some volatility around 10am when released as this is the last Inflation reading before an expected QE taper announcement from the European Central Bank in June. Today is expected to bring an announcement from the US/EU over proposed tariffs on EU steel exports to the States. The Trump administration is proposing 25% tax on steel and 10% tax on aluminium in an effort to support the domestic industry. Implementation has already been delayed once and should it happen again expect the commodity currencies to rally. GBP/EUR sits at 1.1375.

Australian Private Capital Expenditure q/q saw a slower than expected uptick to 0.4% overnight. Despite missing target the previous reading was revised up from -0.2% to 0.2% meaning the reaction to the Aussie was relatively muted, especially given the rally the commodity currencies were enjoying on the back of easing fears re: Italy. All eyes now turn to tomorrows US Jobs Report with a miss likely to propel the Aussie, Kiwi, Loonie etc higher still. AUD/USD is at .7580 with GBP/AUD at 1.7590.

The Canadian dollar has surged over the past couple of days with USD/CAD dropping from around 1.3050 to currently sit at 1.2850. Improving risk sentiment, rising crude oil and a hawkish hold from the Bank of Canadas latest interest rate decision all adding support to the Loonie. A hold from BOC head, Stephen Poloz was expected however he indicated that the policy makers were likely to raise rates again soon as some of the dovish language from the statement was removed and concerns over household debt were countered by comments on rising incomes. A move below 1.28 could be on the cards tomorrow should US data miss target. GBP/CAD trades at 1.7140.

Overnight saw the latest ANZ Business Confidence reading drop even further into negative territory down to -27.1 from -23.4. The report’s authors noted: “Our composite growth indicator, a combination of business and consumer confidence, is consistent with around 2% y/y growth. It suggests the economy may continue gently losing steam, though fiscal stimulus and the record-high terms of trade are providing crucial support.” Despite this NZD/USD has regained the crucial .70 level with GBP/NZD at 1.9050.