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Markets buoyed as Italian coalition formed.

By Jake Trask

GBP/USD seems to have found some support around the 1.3250/1.33 handle over the past few days as concerns over Italy fade and market attention now turns to this afternoons US Jobs Report. Before this we finally have some UK data this morning with the monthly Manufacturing PMI expected to drop from 53.9 to 53.5 further evidencing that the UKs poor first quarter performance has rolled over into Q2. The key print for the UK in the next few days will be Tuesdays services PMI as this sector represents 80% of the UK economy. Data-wise this will be the key event from the UK next week. Cable is a little under 1.33 at present.

The US jobs report is due at 1:30pm with Non-Farm Payrolls expected to have increased by around 189k in May. Despite the NFP being the headline print, the markets will be more focused on the wage growth number with earnings expected to have increased by 0.2% on a monthly basis and 2.7% as an annualised figure. Anything to the north of this will up the pressure on the Fed to hike rates four times year; chances of this happening are around one in three at present. Away from data the Trump administration has enacted its long threatened steel/aluminium tariffs overnight with Canada, Mexico and the EU being hit with 25% import duty on steel and 10% on aluminium. Commodity currencies dipped on the news and Asian equities finished lower however European bourses are in positive territory this morning as positive news re: Italy emerges.

After months of wrangling and the threat of new elections roiling markets earlier this week a coalition government has finally been formed in Italy. The sticking point on Monday that saw talk’s stall was the choice of Paolo Savona as Economy Minister which was vetoed by Italian President Sergio Mattarella on concerns that his anti-euro stance could lead to Italy leaving the single currency. Instead, Economics Professor Giovanni Tria will take up the Economy Minister position with Savona taking up European affairs. Relief has been breathed throughout the markets with European bourses up across the board and EUR/USD close to 1.17 when it look like dropping below 1.15 on Monday/Tuesday. GBP/EUR trades around 1.1365.

After dipping on the Trumps steel/aluminium tariffs the commodity currencies have pared some of their losses on the positive news from Italy. AUD/USD is around .7550 at present up from its midweek low of .7475 although down from its of high of close to 76 cents seen yesterday. With markets in Asian now closed all cues will be taken from the US Jobs report at lunchtime today. GBP/AUD is at 1.7585.

USD/CAD saw big swings throughout the past 24 hours. Buoyed by upbeat comments from Bank of Canada head Stephen Poloz in his monetary policy decision The loonie dropped on the Trump/steel decision before rallying as monthly GDP and oil numbers added support to the local unit. USD/CAD is at 1.2950 with GBP/CAD at 1.7205 with all eyes now on US jobs numbers.

The Kiwi is currently back under 70 US cents today despite the positive news from Italy. The Kiwi is more vulnerable than its counterparty across the Tasman Sea as market jitters over the new government hit NZD. GBP/NZD trades at 1.90.