Euro weakens due to Italy concerns

As the UK and the US return from their bank holiday, liquidity and European political worries dominate the agenda today.

The USD remains a safe haven as Italian bond spreads continue to widen. The market will also be listening more closely to the many ECB speakers today to gauge their reaction and thoughts to escalating risks.

Otherwise, while we have a busy calendar the rest of the week, including employment figures, second readings of Q1 GDP and PCE inflation gauge in the US and inflation readings in Europe, today’s calendar is light.

Domestically, early Wednesday we get the BRC price index for May, which will be watched more closely given the recent deceleration in inflation.
After last week’s April report showing the third consecutive decline in annual CPI inflation, markets will be looking for any sign the decline is bottoming out.

The euro hit a 6-1/2 month low this morning, falling for the third day in a row as a selloff in Italy’s bond markets due to rising political worries there drove investors to dump the single currency.

Italy’s president set the country on a path to early elections on Monday, appointing a former International Monetary Fund official as an interim prime minister with the task of planning for snap polls and passing the next budget.

Financial markets are concerned the elections, which could take place as soon as August, might serve as a quasi-referendum on Italy’s role in the European Union and eurozone and strengthen the country’s Eurosceptic parties even further.

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