The euro opens Tuesday close to its lowest in 18 months against the pound and the US dollar. News that Spain will head to the polls at the end of November combined with lingering concerns about French government spending, as well as the related risk that this could prevent the European Central Bank from raising interest rates.
France aims to reduce its spending deficit to 5% of gross domestic product (GDP) next year, while public debt is expected to approach 122%. The gap between French and German borrowing costs has widened to levels last seen during the eurozone debt crisis, demonstrating just how quickly concerns have rippled across financial markets.
Spain’s election comes after legislation aimed to tackle the housing crisis was defeated in parliament. Prime minister Pedro Sánchez appears to be gambling that an early election will strengthen his minority government, but the risks for his party and the euro are significant.
The Brazilian Real zoomed up by close to 5% against the US dollar yesterday as Flávio Bolsonaro emerged as the favourite to become the next president. Bolsonaro, who is widely regarded as the most market-friendly option, will now head into a direct run-off against incumbent Luiz Inácio Lula da Silva.
Politics was the main talking point on Monday as the price of oil held steady just above $100. Supply fears have eased in recent days, although the release of strategic oil reserves has underscored just how threadbare stockpiles are across key economies.
GBP: Pound pauses progress
The pound remained close to recent highs against the euro but lost a little ground to the dollar on Monday. Much of sterling’s strength has come from weakness elsewhere, particularly the loss of confidence in French debt markets, rather than a dramatic improvement in Britain’s economy.GBP/USD: the past year
EUR: Spain adds to political risk
Last week’s selling action in European markets carried over into Monday. If the focus was still on French bonds, Spain’s snap election added another wild card to the mix at an extremely turbulent time for the single currency. Currency markets will now have another election to contend with just months out from France’s own vote.GBP/EUR: the past year
USD: Shrugging off soft data
The US dollar posted a solid start to the week despite Friday’s disappointing jobs data and another (albeit small) miss on services PMI. In that survey, activity still remained firmly in expansionary territory, while price pressures reached their strongest level in over four years.USD/GBP: the past year
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