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The pound and the euro took heavy hits during the morning London session, very likely because of political drama for the former and Italy-related jitters for the latter.

The Greenback, meanwhile, clawed its way up during the session and is now a net winner for the day.

The Greenback wasn’t the top-performing currency of the session, though, since the Loonie continued to attract buyers and there was apparently enough buying pressure to edge out a win against the Greenback.

  • SNB sight deposits: CHF 577.9B vs. CHF 577.6B previous
  • British PM Theresa May will be speaking later

Major Events/Reports:

Italy responds to E.U.

If y’all can still recall, the E.U. sent a letter to Italy last week, warning that Italy’s planned budget deficit is “unprecedented in the history of the Stability and Growth Pact,” while giving Italy until today to respond.

Well, Italian Economy Minister Giovanni Tria delivered Italy’s response earlier.

And according to Tria, the government is aware that its budget plan is “not in line with the applicable norms.”

However, Tria defended the budget by saying that:

“[The budget] was a hard, but necessary decision in light of Italy’s delay in catching up to pre-crisis levels of GDP and the desperate economic conditions in which the most disadvantaged citizens find themselves in.”

Tria then basically said that Italy will stick to its budget plan:

“The government trusts that what it has explained is sufficient to clear up the setup of its budget and that the [fiscal] law will not put at risk the financial stability of Italy or other EU state members.”

Italian PM Giuseppe Conte clarified later that Italy wants to push through with its budget plan but is also willing to negotiate with the E.U.:

“In this letter we explained why we set it out in this way, we explained the direction of our economic policy, the objectives we intend to achieve.”

“But we are willing to get around a table to continue dialogue with the European Commission.”

“If it is rejected (by the Commission), we will sit at a table and assess things together.”

British PM to be deposed?

Conservative Party Andrew Bridgen was interviewed by British radio station LBC earlier and, well, this is what Bridgen had to say:

Bridgen’s comment is within the context of news over the weekend that this Wednesday’s Conservative Party meeting may lead to a leadership challenge.

Bundesbank report

The Bundesbank (Germany’s central bank) released its monthly report during the session.

And sadly, the bank warned that Germany’s growth may have stalled in Q3, largely because of weaker car manufacturing output.

But on a more upbeat note, the bank also said that “The economic upswing in Germany is still fundamentally intact.”

Moreover, the bank noted that things could get better in Q4 since “business climate improved noticeably in the third quarter, according to the Ifo Institute, so a significant expansion of economic output is expected for the current quarter.”

Risk-friendly start in Europe

The major European equity indices had a mixed but mostly positive start. And it soon became even more apparent that risk-taking was the name of the game in Europe since the major European equity indices began moving broadly higher and most were moderately in the green by the end of the session.

And market analysts say that the risk-friendly vibes were due to relief that Moody’s decided not to downgrade Italy’s outlook from “stable” (but downgraded Italy’s credit rating), as well as optimism because of China’s plans for a tax cut on personal income.

  • The pan-European FTSEurofirst 300 was up by 0.33% to 1,425.60
  • Germany’s DAX was up by 0.67% to 7,096.79
  • The blue-chip Euro Stoxx 50 was up by 0.31% 3,221.65

Major Market Mover(s):

CAD

Oil benchmarks extended their gains during the first half of session, which likely fueled demand for the Loonie.

Oil benchmarks began turning lower during the later half of the session, though. And interestingly enough, the Loonie remained resilient and traded sideways on most pairs instead of getting dragged lower.

USD/CAD was down by 4 pips (-0.03%) to 1.3087, NZD/CAD was down by 25 pips (-0.29%) to 0.8608, AUD/CAD was down by 22 pips (-0.24%) to 0.9298

USD

The Greenback was the second top-performing currency of the session. U.S. bond yields were on the rise at first, so the Greenback’s recovery made sense.

However, the Greenback continued to attract buyers even as U.S. bond yields eased of their highs later.

There was no apparent catalysts for the Greenback’s sustained demand, but it’s probable that the Greenback was just feeding off the euro and the pound’s weakness.

USD/JPY was up by 7 pips (+0.06%) to 112.81, USD/CHF was up by 11 pips (+0.11%) to 0.9971, NZD/USD was down by 17 pips (-0.26%) to 0.6578

GBP

The pound was the biggest loser of the session (and of the day for that matter), very likely because of growing political uncertainty in the U.K. And the apparent catalyst for the pound’s slump during the session was Conservative Party Andrew Bridgen’s comments during an interviewed by British radio station LBC.

GBP/USD was down by 78 pips (-0.60%) to 1.3005, GBP/CHF was down by 65 pips (-0.50%) to 1.2967, GBP/CAD was down by 107 pips (-0.63%) to 1.7021

EUR

The euro was the second biggest loser of the morning London session, likely because of growing concerns over Italy’s budget.

EUR/USD was down by 47 pips (-0.41%) to 1.1495, EUR/CHF was down by 36 pips (-0.32%) to 1.1461, EUR/CAD was down by 66 pips (-0.44%) to 1.5044

Watch Out For:

  • 12:30 pm GMT: Canadian wholesale sales (-0.2% expected vs. 1.5% previous)
  • 2:30 pm GMT: CB’s Australian leading index (0.1% previous)
  • 2:30 pm GMT: British PM Theresa May is expected to give a speech in Parliament