In a surprising day for markets, the Euro is the major mover. Markets paid enormous interest to the Italian budgetary negotiations within their newly formed domestic coalition. With the dominating ‘League’ party, the composition of spending was almost entirely up for grabs, with secessionist sentiment surrounding the entire debacle. However, with numerous promises from finance ministers and party leaders alike that the government will not exceed a 1.9% running deficit, markets were placated, affording fair value to the Euro. However, today, this has all been dragged into question with the publication and delivery of spending plans delayed without sufficient explanation. Markets are questioning why this has happened and, in so doing, have allowed the Euro to depreciate to lows of 1.1215 against the Pound and fall through 1.17 against an approaching Dollar. On a trade weighted basis, the Euro faces one of its worst intraday sell offs this year. The Pound has struggled to find footing once again as buy the rumour sell the news trading continues to create noise within all major currency crosses. The churning of the rumour mill today surrounded the UK fiscal budget and the potential actions of Chancellor Hammond in his premature 29th October budget. With potential Judge Kavanaugh facing testimony in Washington today, the Dollar remains bid, however, with considerable political risk all around.
- GBP: Buy the Rumour sell the News! Sterling continues to face the doldrums with uncertain political direction. An early budget has investors worried.
- EUR: Staggering losses for the Euro as Italy delays its budget announcement with as lack of certainty as to why. Markets price out the sustainability of Italy’s fiscal outlook.
- USD: Deliberations over the suitability of Kavanaugh to the incumbent administration are underway with harrowing testimonies no affecting the Dollar; yet. Dollar demand continues, supported by flagging Euro support, however, tomorrow is another worrying day for the greenback.
- EM: A risk on mood within markets supports emerging assets and currencies. The Rand rallies as the South African administration continues to view the domestic economy as severely undervalued.
Discussion and Analysis by Charles Porter