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The pound was forced to give back its gains during the morning London session, apparently because earlier rumors about the U.K. being ready to stay in the customs union got shot down.

The Greenback, meanwhile, regained its mojo and was the one currency to rule them all during the session, with higher U.S. bond yields being cited as the reason for the Greenback’s strength.

  • Italian trade balance: €4.53B vs. €3.74B expected, €3.10B previous
  • Theresa May denies earlier rumors that the U.K. is ready to stay in customs union
  • A bunch of central bank officials will be speaking later

Major Events/Reports:

More Brexit-related rumors

Earlier today, the pound fired its booster rockets and spurted higher, thanks to a report from the Telegraph that the U.K. is supposedly ready and willing to stay in a customs union with the E.U. beyond 2021 after the transition period ends.

However, a Reuters report released during the London session turned that rumor on its head.

The Reuters report (quite naturally) cited an unnamed “source in Theresa May’s Downing Street office” as saying that:

“We agreed in December and in March to a backstop but the proposal put forward by the EU is completely unacceptable.”

“It would mean a border down the Irish sea and we could never agree to that. Negotiations are taking place on what a workable backstop might be.”

“The PM and the government are absolutely clear once the implementation period is over in December 2020 we will be able to not only negotiate and sign trade deals with the rest of the world but also implement them.”

And as it later turned out, the Reuters report got it right since…

Theresa May shoots down Telegraph report

Shortly after Reuters released its report, British PM Theresa May arrived at Sofia, the Bulgarian capital.

The press were naturally all over her and the PM used the press time to promptly shoot down the Telegraph report (and affirm the Reuters report) by saying that (emphasis mine):

The United Kingdom will be leaving the customs union, we are leaving the European Union. Of course we will be negotiating future customs arrangements with the European Union and I have set three objectives; the government has three objectives in those.”

“We need to be able to have our own independent trade policy, we want as frictionless a border [as possible] between the UK and the EU so that trade can continue and we want to ensure there is no hard border between Northern Ireland and Ireland.”

Italian government finally forming?

According to a Reuters report, the 5-Star Movement and the League party of Italy have finally hammered out a deal to form a coalition government.

And according to a draft of the deal seen by Reuters, the E.U. will be none too happy with some provisions of the deal, namely with regard to proposed fiscal rules on “cutting taxes, increasing welfare payments for the poor and scrapping an unpopular pension reform.”

The deal does not yet include who the next Italian PM will be, though. But the draft does exclude plans to ask for debt forgiveness from the ECB, effectively denying earlier rumors.

A later Bloomberg report cited news agency ANSA as saying that the deal is not final yet, however.

Also, the two parties still need the backing of their voters before they can present the deal to Italian President Sergio Mattarella.

Some risk-taking in Europe

There were signs of risk-taking in Europe since the major European equity indices were slightly in the green for the day.

And market analyst say that the risk-on vibes in Europe was due to the recovery in Italian shares, as well as positive earnings reports and demand for commodities shares.

  • The pan-European FTSEurofirst 300 was up by 0.10% to 1,544.76
  • Germany’s DAX was up by 0.23% to 13,026.41
  • The blue-chip Euro Stoxx 50 was up by 0.19% to 3,568.65

Major Market Mover(s):

GBP

The pound had a reversal of fortune since it was the best-performing currency of the earlier session but ended up as the worst-performing currency of the morning London session.

And the apparent reason for the pound’s slide was the Reuters report that contradicted the earlier Telegraph report, as well as Theresa May’s comment that the U.K. “will be leaving the customs union,” which affirmed the Reuters report and invalidated the earlier Telegraph report.

GBP/USD was down by 32 pips (-0.24%) to 1.3498, GBP/AUD was down by 22 pips (-0.13%) to 1.7933, GBP/NZD was down by 50 pips (-0.26%) to 1.9587

USD

After a lackluster performance during the earlier session, the Greenback apparently regained its mojo and trumped its peers during the morning London session.

And according to market analysts, the Greenback was bid higher because of the rise in U.S. bond yields. Although it’s worth pointing out that the Greenback continued to rise when U.S. bond yields took a step back late into the session.

USD/JPY was up by 20 pips (+0.18%) to 110.64, USD/CHF was up by 16 pips (+0.16%) to 1.0020, USD/CAD was up by 16 pips (+0.13%) to 1.2780

Watch Out For:

  • 12:30 pm GMT: Canadian foreign security purchases ($3.00B expected vs. $3.96B previous)
  • 12:30 pm GMT: ADP’s Canadian non-farm employment change (42.8K previous)
  • 12:30 pm GMT: U.S. initial jobless claims (215K expected vs. 211K previous)
  • 12:30 pm GMT: Philadelphia Fed’s manufacturing index (21.2 expected vs. 23.2 previous)
  • 2:45 pm GMT: Minneapolis Fed President Neel Kashkari will give a speech
  • 4:00 pm GMT: BOE MPC Member and Chief Economist Andy Haldane is scheduled to speak
  • 5:30 pm GMT: Dallas Fed President Robert Kaplan will speak