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Merkel Weighs on the EUR, with the UK Budget and the GBP in Focus

Bob Mason
Merkel’s coalition government looks to be on the ropes once more, suggesting a possible coalition breakdown, with the UK budget the main event today.

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, with stats limited to September retail numbers out of Japan.

For the Japanese Yen, retail sales rose by 2.1% in September, which was in line with forecasts, whilst easing from a 2.7% rise in August. Month-on-month, sales fell by 0.2% to partially reverse August’s 0.9% rise.

The softer sales figures will have been a disappointment for both the BoJ and Prime Minister Abe who are looking for a pickup in domestic consumption to support an economy coming under pressure as the U.S – China trade war wages on, the effects of which are becoming evident across major economies including those of China and the Eurozone.

The Japanese Yen moved from ¥111.929 to ¥111.946 against the U.S Dollar, upon release of the figures, before rising to ¥111.85 at the time of writing, up 0.05% for the session.

Elsewhere, the Aussie Dollar found support early on, up 0.13% to $0.7099 at the time of writing, with the Kiwi Dollar rallying 0.49% to $0.6545, the gains coming off the back of heavy losses last week, supported by a slight easing in risk aversion.

In the equity markets, it was a mixed bag through the early part of the day, the ASX200 rallying 1.16% to reduce some of the month’s deficit and the Hang Seng clawing back early losses to gain 0.13% at the time of writing, while the Nikkei and CSI struggled, with the pair down 0.09% and 1.99%.

The Day Ahead:

For the EUR, while there are no material stats scheduled for release, with the EUR remaining under pressure at the start of the week, last week’s economic indicators and resulting shift in sentiment towards the Eurozone’s economic outlook weighing, with Italy’s coalition government also there to consider.

With geo-politics the center of attention across globe, regional elections in Germany over the weekend delivered further pressure on the EUR at the start of the week, with Merkel’s coalition government seeing support slide in Germany’s state of Hesse that is includes Frankfurt and what could become Europe’s financial centre. Both the CDU and SDPs seeing more than 10% losses compared with the previous election, with the AfD getting 12% of the vote to enter the regional assembly.

At the time of writing, the EUR was down 0.10% to $1.1392, with noise from Germany, Italy and concerns over the Eurozone economy in focus through the day.

For the Pound, there is no economic data scheduled for release, while the Chancellor of the Exchequer will be releasing his autumn budget, the question being whether there will be an easing on the government’s austerity measures to support the British economy as Brexit talks approach the final curtain.

It’s the budget before Brexit and, with the Chancellor having spoken of a need to revise budget plans in the event of a no-deal, there could be a loosening of the purse strings later today.

At the time of writing, the Pound was up 0.02% to $1.2830, with today’s autumn budget the key driver, while Brexit chatter will also need to be considered.

Across the Pond, economic data scheduled for release this afternoon includes the FED’s preferred inflation figures, with September’s Core PCE Price Index numbers due out alongside, personal income and spending numbers.

Forecasts are for the core annual rate of inflation to ease back to 1.9%, which would be a negative for the Dollar, while a forecasted pickup in personal income would likely offset any negative effects should personal spending be in line with or better than forecasts.

Outside of the stats, FOMC member Evans is scheduled to speak following the release of the figures, with any policy talk expected to be Dollar positive following recent comments by Evans in favour of the FED’s current policy goals.

At the time of writing, the Dollar Spot Index was up 0.11% to 96.467, supported by the better than expected stats out of the U.S on Friday, with today’s stats the key driver through the U.S session.

For the Loonie, there are no material stats scheduled for release through the day, leaving the markets to consider what lies ahead on the policy front, with the U.S – China trade war a possible roadblock to further rate hikes should the global economic outlook continue to soften.

The Loonie was up 0.02% to C$1.3103 against the U.S Dollar at the time of writing, the Loonie struggling in spite of last week’s rate hike and hawkish BoC commentary.

This article was originally posted on FX Empire