Good morning,

USD: Trump upsets everyone and heads to Singapore
The currency market reaction to the G7 meeting and its fallout has been rather sensible with only USDCAD going for a real move on the back of comments from the US that President Trudeau had ‘stabbed Trump in the back’ and that Trudeau was “very dishonest and weak”. This came after President Trudeau announced that Canada could impose retaliatory tariffs on the US following Trump’s initial moves on steel and aluminium.

 The US will likely go after Canada’s automobile sector if Trump’s Twitter is to be believed and, given the weak employment report last week, could easily provoke further losses for the CAD.

The USD has more political hoops to jump through this week with Donald Trump and Kim Jong Un to finally meet in Singapore at 1am UK time tonight. Regional Asian currencies are a little stronger courtesy of some pre-meeting optimism and we think there is a decent chance that this continues.

Looming on the horizon is the Federal Reserve’s June meeting this Wednesday and it is almost certain that interest rates will rise on Wednesday evening.

EUR: Political risk coming out of the euro

Euro has also taken some political cues this weekend and is higher as we enter the new trading week. Italy’s Economy Minister Tria said on Sunday that the country’s new coalition government has no intention of leaving the euro, and plans to focus on cutting debt levels.

“There is no discussion of any proposal to leave the euro. The government is determined to block in every way possible market conditions that would push toward an exit. Not only do we not want to leave the euro; we will act in such a way that there are no conditions approaching that could put into discussion our presence in the euro”.
The make-up of the new Italian government will always garner some additional political risk given the populist elements but the existential threat of Italy leaving the EU is finally being put to bed.
Further euro strength could easily emerge on Thursday too should the European Central Bank’s conversation on quantitative easing more definitively point to an end to the central bank’s buying program by the end of the year.

GBP: Votes and data set to make the week a busy one

GBP is still waiting to step back into the Brexit spotlight but this week’s run of votes on the Lords’ amendments could easily give sterling volatility a decent poke higher. The House of Commons will vote on all the amendments this Tuesday with the government hoping to overturn every single one.

Those in favour of more political unpredictability will point to the chances that a defeat for the government could initiate calls for a change in Downing St and a possible general election as soon as October. We have our doubts given the natural political instinct to see your side hold on to power more than anything.
It is an extremely busy data week in the UK however and sterling is more likely to react to inflation (Tuesday), unemployment and wages (Wednesday) or retail sales (Friday) than news from Westminster.
Today sees industrial and manufacturing production numbers which are expected to continue improving following the weather-affected releases seen earlier in the year.

Have a great day.
Jeremy Thomson-Cook, Chief Economist