Politics Drives as Central Banks Awaited

Politics, including the results of Italy's elections and Brexit headlines, are in focus ahead of central bank decisions later in the week.

Previous Day's Market Highlights

The euro softened as markets opened Sunday evening after Italian election results suggested a hung parliament and populist parties saw significant vote shares. Euro-dollartemporarily fell back below 1.23 and sterling-euro briefly regained 1.12 after inching to new lows in 2018 during Friday’s session. The rate had fallen below 1.1170. Earlier news had been positive for the euro after the SPD voted to join Merkel’s CDU in a coalition government.
 
Brexit uncertainties came back into focus and broadly weighed on the pound, which fell below 1.38 against the dollar from above 1.40 at the start of the week. Prime Minister May’s speech Friday saw a relatively muted reaction. The dollar saw support earlier in the week from more hawkish Fed comments following testimony from Chair Powell and other Fed speakers, including Dudley, who suggested four hikes this year would still be gradual. The Fed has been projecting three.
 
In the second half of the week, equities and the US dollar came under renewed pressure last week after President Trump announced tariffs on steel and aluminium, prompting concerns of a trade war. Risk-off sentiment weighed on the commodity currencies, while the Canadian dollar received little support as Q4 GDP growth was slower than forecast.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1208 1.1453 1.1210 2.12%
GBP/USD 1.3769 1.4279 1.3711 3.98%
EUR/USD 1.2284 1.2556 1.2154 3.20%
GBP/AUD 1.7799 1.7999 1.7574 2.36%
GBP/NZD 1.9103 1.9456 1.8934 2.68%
GBP/CAD 1.7773 1.7806 1.7371 2.44%

Today's Market Highlights

The UK’s Services PMI surprised to the upside this morning, providing some support for the pound. However, Brexit headlines remain the key driver and continue to pose a downside risk. The results of the Italian elections will remain a key driver for the euro, particularly with only mid-level data expected this morning.
 
In the afternoon, the main release for the dollar is the ISM Non-Manufacturing PMI (15:00 GMT), forecast to dip. This, combined with continued focus on trade war concerns, could put additional pressure on the dollar.
 
Looking ahead this week, the RBA announces its latest policy decision overnight and is expected to keep interest rates on hold. Australian GDP will be released early Wednesday morning. The Bank of Canada is also expected to keep interest rates on hold when it meets Wednesday, as is the ECB on Thursday; key for the ECB will be any change in guidance regarding QE. The US releases its closely watched jobs report on Friday.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00 EUR Retail Sales YoY (Jan) 2.1% 1.9%
10:00 EUR Retail Sales MoM (Jan) 0.3% -1.1%
14:45 USD Markit Composite PMI (Feb) 55.5 55.9
15:00 USD ISM Non-Manufacturing PMI (Feb) 59.0 59.9
18:15 USD Fed's Quarles Speaks
00:30 AUD Current Account Balance (Q4) -12.6B -9.1B
00:30 AUD Retail Sales s.a. MoM (Jan) 0.4% -0.5%
03:30 AUD RBA Interest Rate Decision 1.5% 1.5%
03:30 AUD RBA Rate Statement

Caxton