Euro, Pound Suffer as Markets Eye Busy Week for European Politics

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TALKING POINTS – EURO, POUND, BREXIT, ITALY, US DOLLAR, CANADIAN DOLLAR

  • British Pound drops as UK PM May struggles for Brexit plan support
  • Euro down before Italy vs EU clash, Sweden votes on new government
  • US Dollar may be joined by Yen, Franc on the upside in risk-off trade

The Canadian Dollar outperformed in Asia Pacific trade, in move seemingly linked to a spirited recovery in crude oil prices. That followed from OPEC+ comments over the weekend hinting that the cartel and its allies may reduce output in 2019.

The US Dollar likewise rose, deftly pivoting from Friday’s haven demand-driven rally to a renewed focus on the Fed rate hike prospects. A recovery in risk appetite buoyed Treasury yields while the priced-in rate hike outlook implied in Fed Funds futures steepened.

Meanwhile, the British Pound slumped as progress on Brexit negotiations continued to disappoint. UK Prime Minister Theresa May is struggling to convince the cabinet to back her strategy for country’s post-separation relationship with the EU, with further resignations hinted after Friday’s departure of Jo Johnson.

EU POLITICS WEIGH ON EURO, POUND AND BROAD MARKET MOOD

A dull offering on the European data docket is likely to keep sentiment trends in focus from here. S&P 500 futures continue to point higher ahead of the opening bell on Wall Street but conviction seems to be ebbing as worries about several concurrent EU-based flashpoints preoccupy investors.

Beyond the Brexit stalemate, Italy on course to collide with regional bloc authorities about its budget and Sweden is still struggling to produce a government after months of fruitless haggling following inconclusive elections. A Moderate-led minority government will be pitched to parliament later this week.

Against this backdrop, the Euro is quickly emerging as the second-worst performing currency on the day after Sterling. The spread between German and Italian bond yields has tellingly widened, reflecting the growing risk that markets see associated with lending to Rome versus Berlin.

The Greenback seems to have taken the shifting market mood in stride yet again, finding renewed support from safety-seeking capital flows. If the pendulum swings to a risk-off setting in earnest, it will probably be joined on the upside by the perennially anti-risk Japanese Yen and regional haven Swiss Franc.

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ASIA PACIFIC TRADING SESSION

Euro, Pound Suffer as Markets Eye Busy Week for European Politics

EUROPEAN TRADING SESSION

Euro, Pound Suffer as Markets Eye Busy Week for European Politics

** All times listed in GMT. See the full economic calendar here.

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