Morning Commentary: The Euro and British Pound Head Lower

Foreign Exchange - Morning Commentary

The Euro and British Pound Head Lower

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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
The U.S. dollar is broadly higher this morning, but it is more weakness in European currencies rather than a good news story for the dollar.  The euro is at a 2-month low just above the 1.14 level on the interbank market as Eurozone headline Purchasing Manufacturer's Index hits a 2-year low.  The culprit continues to be concerns about how the situation with Italy's budget will play out.  A break of a key technical level at 1.1430 exacerbated the move.
 
British pound sterling is at its lowest level since early September, hanging in the low 1.29s on the interbank market.  This is due to continued worries about what will happen with Brexit and the future of PM May's tenure at 10 Downing St. 
 
The Bank of Canada releases its rate decision this morning, with markets fully pricing in a 25% rate hike to 1.75%.  Recent softer data still pales in comparison to markets' delight that the NAFTA rewrite seems to be on track. 
 
U.S. equities are opening somewhat flat today after a wild ride yesterday.  As we have been discussing, it is all earnings these days.  Yesterday, poor and worrying reports from 3M and Caterpillar sank equities at the open, but markets rebounded to close about half of a percent lower on the day.  Today, Boeing, which makes up 9% of the Dow Jones Industrial Average, came out with rather spectacular earnings; they had a 37% increase in free cash flow, earnings that beat estimates and they predicted that sales would reach $100 billion for the first time.   
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The Swedish central bank – the Riksbank – kept its benchmark rate at -0.50% as expected but indicated that it will soon begin to raise rates, but at a slow pace.  This is rather significant as we have had very little indication heretofore from European banks ready to indicate more of a normalization of rates.  This ups the attention that will be paid to the ECB rate decision and press conference tomorrow.
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