The euro and the pound had another rough time during today’s morning London session, with Italy-related concerns being blamed for the euro’s weakness and Brexit being cited as the reason for the pound’s slide.
The Greenback and the yen, meanwhile, were in high demand, very likely because of the persistent risk-off vibes.
- German trade balance: €18.3B vs. €15.9B expected, same as previous
- NFIB U.S. small business index: 107.9 vs. 108.9 expected, 108.8 previous
According to a report from Il Sole 24 Ore, the European Commission is supposedly set to reject Italy’s draft budgetary plan later this month for violating the E.U.’s budget rules under the Stability and Growth Pact.
That’s not really new, though, since E.U. officials such as Dombrovskis and Moscovici have openly expressed concern about Italy’s budget.
The European Commission also sent a letter over the weekend, which noted that Italy’s budget is “a source of serious concern.”
In other news, Italian Finance Minister Giovanni Tria spoke before the Italian Parliament during the session. And he said that Italy’s “lag in economic growth and employment … is no longer acceptable.”
Tria then defended the Italian government’s budget plan when he described the plan as “courageous, but not fearless and irresponsible.” He also defended the government’s growth targets (1.5% in 2019, 1.6% in 2020, and 1.4% in 2021) as “prudent“.
Barnier tweets (about Brexit)
E.U. Chief Brexit Negotiator Michel Barnier had this somewhat positive message during the session, which allowed the pound to lick its wounds.
Continuing discussions with Northern Irish political leaders today: @DUPleader, @DianeDoddsMEP & @RobinSwannUUP, @JNicholsonMEP. Working hard to explain and de-dramatise the backstop #Brexit pic.twitter.com/JLW2oQNYzG
— Michel Barnier (@MichelBarnier) October 9, 2018
Another risk-off day in Europe
The risk-off vibes just won’t go away, so the major European equity indices slumped lower for yet another day.
And according to market analysts, today’s bout of risk aversion was due to Italy-related jitters, as well as growth-related concerns after the IMF downgraded its global growth forecasts earlier in the day.
- The pan-European FTSEurofirst 300 was down by 0.42% to 1,455.47
- Germany’s DAX was down by 0.61% to 11,874.70
- The blue-chip Euro Stoxx 50 was down by 0.51% to 3,291.05
Major Market Mover(s):
The euro was the biggest loser of the morning London session and is also currently the biggest loser of the day.
The euro actually had the upper hand against the pound for most of the session. However, the euro encountered more sellers when Tria spoke, while the pound began to recover after Barnier’s tweet and ahead of Raab’s speech before Parliament.
EUR/USD was down by 40 pips (-0.35%) to 1.1434, EUR/JPY was down by 63 pips (-0.48%) to 129.35, EUR/NZD was down by 59 pips (-0.33%) to 1.7777
The pound closed out the session in second-to-last place. There were no negative catalysts for the pound’s slide, but market analysts were still pointing to growing Brexit-related concerns, which prompted market players to take their profits and run.
However, the pound did find support after Barnier tweeted that somewhat positive message on Brexit.
But then again, Brexit Secretary Raab is expected to speak before Parliament on the current state of Brexit talks later, so the pound’s rise may have also been due to short-covering.
GBP/USD was down by 42 pips (-0.32%) to 1.3035, GBP/JPY was down by 67 pips (-0.45%) to 147.47, GBP/NZD was down by 61 pips (-0.30%) to 2.0265
JPY & USD
The safe-havens yen and Greenback were the top-performing currencies of the session, likely because of the persistent risk-off vibes in Europe.
And between the two, it was the yen that came out on top, likely because the BOJ has yet to push down rising 10-year JGB yields. Although some market analysts also say that falling U.S. equities have dampened demand for the Greenback a bit.
USD/JPY was down by 15 pips (-0.13%) to 113.12, AUD/JPY was down by 27 pips (-0.33%) to 79.84, NZD/JPY was down by 11 pips (-0.16%) to 72.76
NZD/USD was down by 6 pips (-0.09%) to 0.6432, AUD/USD was down by 14 pips (-0.20%) to 0.7058, USD/CAD was up by 29 pips (+0.23%) to 1.2998
Watch Out For:
- 12:15 pm GMT: Canadian housing starts (203K expected vs. 201K previous)
- 12:30 pm GMT: Brexit Secretary Dominic Raab expected to speak before Parliament on the state of Brexit talks
- 2:00 pm GMT: Chicago Fed President Charles Evans will speak
- 2:35 pm GMT: BOE MPC Member Ben Broadbent will testify before the Economic Affairs Committee
- 6:00 pm GMT: BOC Senior Deputy Governor Carolyn Wilkins will be speaking