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The pound took hits and was the worst-performing currency of the morning London session, thanks to the U.K.’s disappointing PMI report, as well as Brexit-related jitters and concerns over British PM Theresa May’s leadership.

The Aussie also took hits and was the second biggest loser of the session, likely because of the risk-off vibes.

Speaking of risk sentiment, the risk-off vibes in Europe likely helped to drive up demand for the safe-haven currencies (CHF, USD, JPY). Demand for the Swissy was notably stronger, though.

Other than those, the euro is also noteworthy since the euro showed weakness before the morning London session rolled around, thanks to comments from Italy’s Borghi.

The euro managed to win out against the Aussie and the pound, though. Even so, it still closed out the session in third-to-last place since there was some follow-through selling on most EUR pairs.

  • U.K. Nationwide HPI m/m: 0.3% vs. 0.2% expected, -0.5% previous
  • Australian commodity prices y/y: 4.8% vs. 6.6% previous
  • Spanish unemployment change: 20.4K vs. 28.2K expected, 47.0K previous
  • U.K. construction PMI: 52.1 vs. 52.8 expected, 52.9 previous
  • Euro Zone PPI m/m: 0.3% vs. 0.2% expected, 0.7% previous

Major Events/Reports:

Italy’s Borghi speaks

Claudio Borghi, the President of the Budget Committee in Italy’s Chamber of Deputies, was speaking earlier. And he said some rather distressing things since he openly said that Italy should leave the Euro Zone.

Here are the relevant comments:

“I’m totally convinced that Italy would resolve most of its problems with its own currency.”

“Having control of one’s own means in monetary policy is a necessary condition – although not sufficient – to carry out the ambitious and enormous project of renewal.”

However, he also toned down his comments, saying that Italy is trying to play nice with the E.U.

“If we had objectively wanted to clash with the European Union to get this outcome, we would have declared a 3.1% deficit, not a 2.4% one.”

And in a later Bloomberg interview, he was asked about his anti-euro comments, and Borghi admitted that he personally dislikes the euro and wants Italy to leave the euro.

However, Borghi also stressed that the Italian government’s official policy is that:

“There is no plan whatsoever for leaving the euro within this government, regardless of my personal conviction.”

Italy’s Conte speaks

Italian PM Giuseppe Conte got some press time after Borghi spoke. And Conte used that opportunity to reiterate the Italian government’s official position that:

“The euro is our currency and it is indispensable for us.”

“Any other statement that gives another assessment should be considered a free, arbitrary opinion that has nothing to do with the policy of the government I preside over, because it is not contemplated in the contract that is fundamental to this government experience.”

U.K. construction PMI

The U.K.’s September construction PMI report was a disappointment since it showed that the headline reading. fell from 52.9 to a six-month low of 52.1. The market was only expecting a downtick to 52.8. Also, the weaker reading marks the second consecutive month of ever weaker readings.

And according to Markit, all construction categories reported weaker activity, and civil engineering was particularly weak.

However, the future looks a bit more promising since Markit found that “The rate of new order growth picked up to its strongest since December 2016.”

And according to survey respondents, the faster increase in new order growth was due to “resilient demand and an upturn in new invitations to tender.”

Also, payroll numbers increased. Heck, Markit even noted that “[t]he latest increase in employment was the fastest since December 2015.”

And with regard to inflation, Markit found that “[r]ising demand for inputs contributed to a sharp and accelerated increase in average cost burdens during September.”

Risk aversion strikes back

Yesterday’s risk-taking was apparently short-lived since the major European equity indices opened broadly lower and then proceeded to plumb fresh intraday lows as the session progressed.

And market analysts were blaming the risk-off vibes on Borghi’s comments, which caused Italian bank shares to plunge, dragging other financial shares lower and poisoning overall risk sentiment.

  • The pan-European FTSEurofirst 300 was down by 0.67% to 1,496.76
  • Germany’s DAX was down by 0.68% to 12,254.87
  • The blue-chip Euro Stoxx 50 was down by 0.97% to 3,382.15

Major Market Mover(s):

GBP

The pound was the biggest loser of the morning London session. And while the U.K.’s disappointing construction PMI report did help to kick the pound lower, the pound was already showing weakness before the morning London session rolled around.

And according to market analysts, the pound was under bearish pressure because of growing concerns that Theresa May’s Brexit plan is sowing division among the Conservative Party, which raises the odds that she may have to face a leadership challenge.

GBP/USD was down by 52 pips (-0.41%) to 1.2957, GBP/JPY was down by 51 pips (-0.35%) to 147.50, GBP/CHF was down by 66 pips (-0.52%) to 1.2746

AUD

The Aussie was the second biggest loser of the morning London session, likely because of the risk-off vibes in Europe.

Interestingly enough, the higher-yielding Kiwi was also a loser, but the Aussie was notably weaker and the Aussie became particularly weak after the RBA statement.

AUD/USD was down by 25 pips (-0.25%) to 0.7176, AUD/JPY was down by 21 pips (-0.25%) to 81.70, AUD/CHF was down by 33 pips (-0.46%) to 0.7058

CHF

All the safe-haven currencies (CHF, USD, JPY) were in demand during the session, thanks to the risk-off vibes in Europe.

And between the three, it was the Swissy that reigned supreme … during this session at least, since the yen is still the overall champion of the day (so far).

USD/CHF was down by 12 pips (-0.13%) to 0.9836, EUR/CHF was down by 24 pips (-0.21%) to 1.1340, NZD/CHF was down by 16 pips (-0.24%) to 0.6476

Watch Out For:

  • 2:00 pm GMT: U.S. Fed Governor Randal Quarles will testify before the Senate Banking Committee
  • 4:45 pm GMT: U.S. Fed Chair Jerome Powell is scheduled to give a speech
  • Dairy auction currently underway (-1.3% previous); auction usually ends at around 2:00 pm GMT