Euro strength clipped by ECB and Italy
We have a very European flavour in markets this morning with the single currency on the back foot as most of the Western world returns to their desks. Comments from ECB President Draghi were enough to start weakening the euro but fears over an Italian election being called earlier than had previously been thought as well as fears over the Greek debt deal and its everlasting ability to throw up something strange in the summer months won’t have helped.
Draghi’s comments that the European economy needed ‘expansive’ stimulus to restore a level of a stability to the Eurozone despite the recent acceleration in growth is about as obvious as it gets. Comments made later in the day by the more hawkish Jens Weidmann that “in light of subdued price pressures, an expansionary monetary policy continues to be appropriate in principle.”
“But given the continued economic recovery and a — by all forecasts predicted — inflation rate of just below 2 percent in the year 2019, it is indeed a legitimate to ask when the ECB council should consider a monetary-policy normalization.”
All things being equal both extremes of the European Central Bank rate setting architecture are in agreement and the euro has weakened as a result.
Similarly, news reports over the weekend in Italy that suggested that a proportional electoral law could be passed increases the chances that an early election is called. Italian bonds as well as those of other periphery nations fell against the more secure German and French notes. Finally Germany’s Build newspaper hinted yesterday that Greece is ready to default on its next debt payment should the next package not include some form of debt relief. Their next payment is due in July.
9 days until the UK election
News from the UK has also been somewhat subdued with yesterday’s questioning of Prime Minister May and Jeremy Corbyn having little impact on the pound. Sterling fell on Friday as new opinion polls suggested that the Conservative lead was continuing to shrink with comments in some of the Sunday papers that a Corbyn win could drive GBP/USD down to $1.20. The latest polls have him still around 9 points down and while some of the damage done to the May lead was done by the confusion around her social care policy – or ‘dementia tax’ as some have called it – yesterday’s debate answer on the matter was a lot more clear. The damage has been done but she may be able to stop the bleeding.
Our webinar on the election is tomorrow and we will be taking a look at the likely electoral outcomes and their impact on the pound, Brexit and your international business. You can register here and a recording will be made available for those unable to make it tomorrow.
The Day Ahead
Today’s data calendar will play into the European question quite nicely with the latest inflation numbers from Germany due this morning with US consumer confidence due this afternoon. Have US consumers started to worry about where the economy is headed given the maelstrom in Washington?