Euro sinks with Merkel’s Coalition hopes
In the absence of any UK economic data, the Pound was influenced primarily by global trends and political developments. EU Council President Tusk stated that the UK had not made enough progress to move Brexit talks forward and that it needs to happen at the beginning of December in order to move on to trade talks. Evidence that some headway had been made was supportive of Sterling sentiment.
The Euro rebounded from a test of 1.1235 support, although there was a small net loss for the day while Sterling closed just above 1.3200 against the Dollar after being rejected above 1.3250 amid choppy trading conditions.
With a backdrop of heightened scrutiny of political developments, Chancellor Hammond delivers his budget on Wednesday and, if badly received, it will increase government tensions. In addition, the collapse of the German coalition talks will have an impact on Brexit negotiations.
The US Dollar was weaker against a basket of currencies as investors and traders keep watch for progress on the tax bill. The Dollar index closed the week below the technically important 94.00 level, reflecting concerns over a report by the Wall Street Journal that Special Counsel Robert Mueller’s investigators had subpoenaed Trump’s election campaign for documents.
The focus for the Dollar now shifts to the meeting minutes from the last Federal Reserve (Fed) meeting which are due to be released on Wednesday. The minutes will continue to allude to diverging views within the committee and is unlikely to inspire much upside in US rates or the US Dollar this week. Nonetheless, the markets’ expect Fed-obsession to come to a halt in 2018 as monetary policy repricing opportunities look to be greater elsewhere.
Events over the weekend caused a defensive tone for the Euro as German Chancellor Merkel revealed talks for a coalition had broken down as the Free Democrats withdrew from discussions. This could spark fresh elections and, therefore, uncertainty which will undermine the single currency.
Further on Friday, Bundesbank head Weidmann expressed that inflationary pressures remain subdued below economic recovery, however, the impact of his rhetorics on the market was minimal. The Euro closed last week just above the 1.1200 mark against the Pound whilst just below 1.1800 against the Dollar.
Today is a busy day for the Euro as a number of speeches from highly regarded members of the European Central Bank (ECB) take place. President Draghi, after stating last week how the Eurozone recovery of inflation is not yet self-sustainable without stimulus, will give an opening statement at ECON Hearing of European Parliament in Brussels. ECB’s Lautenschläger and Vice President Vitor Constancio will also be talking today.
Data To Watch:
07:00 EUR Producer Price Index (YoY) (Oct)
07:00 EUR Producer Price Index (MoM) (Oct)
12:15 EUR ECB’s Lautenschläger Speech
14:00 EUR ECB President Draghi’s Speech
14:15 EUR ECB Vice President Vitor Constancio speech
16:00 EUR ECB President Draghi’s Speech
18:30 GBP BOE Ramsden Speech