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Euro could weaken further

Sterling rose this morning after comments from the once-dovish Bank of England deputy governor reinforced the view that the bank would soon raise rates, while the opposition Labour party’s support for a customs union after Brexit added to the optimism.

British opposition leader Jeremy Corbyn is due later today to support staying in a customs union with the EU after Brexit, a move that could lead to a parliamentary defeat for Prime Minister Theresa May.

Analysts said Corbyn’s support for a customs union made a so-called “softer” Brexit — or one in which Britain retains as close as possible ties to the EU after leaving — more likely, helping reduce Brexit risks that weigh on the pound.

The euro remains off its recent highs of more than – the currency has rallied this year on the back of dollar weakness – and analysts said investors were cautious about taking big positions this week due to political risks.

Italians vote in a national election on Sunday, while the leading political parties in Germany, Europe’s biggest economy, will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor.

European Central Bank President Mario Draghi’s appearance in the European Parliament today and euro zone inflation data due later this week also add to a nervous outlook for euro trading.

Sources: Reuters, Daily FX, Investing.com

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