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Euro rises as Italy avoids junk rating from Moodys.

By Jake Trask

The pound has staged a small recovery this morning after being sold off last week as the latest EU summit passed without a Brexit deal being reached. Many were hoping last week’s summit would pave the way for a deal to be signed off at a specially convened get-together in November. However it is looking like December at the earliest for any future trade deal to be confirmed. The Irish border is again proving to be the sticking point with neither side able to reach a compromise over how to keep it as frictionless as possible. The impasse saw GBP/USD threaten to drop below 1.30 however there was enough support to keep it above the big number and it has pushed back up towards 1.31 as UK Prime Minister, Theresa May stated she believed a deal was 95% sorted. Data-wise it’s a very quiet week from the UK so Brexit news will continue to dominate sterling’s moves.

The greenback remains well bid across the board however we could get a change in sentiment on Friday as we get the first reading of Q3s GDP rate. The American economy is expected to slow from an annualised 4.2% seen in Q2 to a more moderate but still pretty healthy 3.3%. Obviously should we see a miss then it could signal the beginning of the end of dollars recent bull run. The ongoing dispute between US President, Donald Trump over the death of Saudi journalist Jamal Khashoggi at the Saudi consulate in Istanbul has also seen some dollar selling of late. The Saudi authorities finally admitted on Friday that he was dead, claiming he died in a fist fight in the consulate.

Italian politics continues to dominate the headlines in euroland as the new coalition government’s proposed budget concerns investors. That said, there was something to cheer about on Friday as credit ratings agency, Moodys stopped short of reducing Italy's rating to junk status. They also assigned a stable outlook to its rating which means there is no immediate threat of junk status being applied in the short term. Italian bond yields fell and EUR/USD has risen around half a cent this morning to around 1.1550 on the back of the news. This weeks big event is Thursdays interest rate decision from the European Central Bank however there is unlikely to be any change in rates so it will be the message about the future timing of hikes that will be scrutinised. GBP/EUR trades at 1.1330.

An improvement in risk appetite over Moody decision to reaffirm Italys stable outlook has benefitted the Aussie, helping AUD/USD push through .71 this morning. It’s a quiet week from Australia so expect external matters to be the main driver of the local dollar. GBP/AUD is at 1.8380.

The Canadian dollar suffered a poor end to the week with USD/CAD briefly pushing through 1.31 as Friday saw big miss in both CPI and Retail Sales. Analysts had expected both sets of data to show a monthly uptick of 0.1% however each saw a drop of -0.4% causing loonie crosses to spike. USD/CAD has retraced a touch to around 1.3080 at present with the markets starting to eye Wednesdays Bank of Canada interest rate decision. GBP/CAD sits at 1.7110.

New Zealand has enjoyed a long weekend with today being the Labour Day bank holiday. NZD/USD trades around the .66 handle. GBP/NZD is at 1.9825.