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The future is full of promise

They would say that, wouldn't they

Italy's budget deficit has replaced North American trade as the cause du jour in financial markets. Overnight media headlines stressed the antipathy between Italy and the EU yet the euro jumped almost half a cent higher in the early hours on a report that the deficit would narrow in the next couple of years.

Some of the headlines in the English-language media were quite incendiary, reflecting the displeasure of investors and EU finance ministers alike at the Italian plan to run a 2.4% budget deficit. Nevertheless, after early downward pressure on Tuesday the euro began to claw its way back up the rankings as the London session progressed.

Overnight it broke higher when the Corriere della sera, the newspaper that published the article which first triggered the panic nearly a week ago, printed a new story. The Italian government apparently intends that the 2.4% deficit will apply only to 2019; in the following two years the shortfall will narrow to 2.0%. Investors in the Far East took it at face value this morning, reducing short-euro positions. It remains to be seen whether Europe will be quite as generous with its trust and support.

Risk off-on-off…

The safe-haven Japanese yen held onto the gains it had made on Tuesday morning, netting a 0.6% advantage over sterling. The antipodean dollars and South African rand took the biggest losses together with the Swedish krona, which remains unfavoured by investors.  

Canada's dollar avoided getting caught in the crossfire; it aligned itself more closely with the US dollar. The Loonie strengthened by quarter of a cent against sterling and the Greenback by a third of a cent. Federal Reserve chairman Jay Powell lent his support to the US dollar. In a speech to the National Association for Business Economics he defended the Fed's steady tightening of monetary policy.

Britain's construction sector purchasing managers' index was unable to match the success of the previous day's manufacturing PMI. At 52.1 it was 0.8 lower on the month and fell short of the predicted 52.5.

The PM speaks

At 10am this morning Theresa May will set out her latest vision of how Britain should leave the European Union. Her speech is unlikely to be as provocative as that of Boris Johnson yesterday but it will be more relevant to Brexit: she is, after all, still in charge of the process.

"The Prime Minister will tell the country that 'our best days lie ahead of us and that our future is full of promise'" according to The Spectator. That should bring the buyers flocking to sterling unless she reminds them that no deal is still preferable to a bad deal.  

On the ecostat agenda the bulk of the serious numbers will be made of purchasing managers' index readings from the services sector. The one from Britain is pencilled in at 54.0, 0.3 points lower on the month. 

USD supported by Fed chairman's speech

USD supported by Fed chairman's speech

EUR rebounds on Italian budget story

EUR rebounds on Italian budget story

GBP awaits prime minister's address

GBP awaits prime minister's address

JPY plays to its safe-haven strength

JPY plays to its safe-haven strength

ZAR and commodity dollars lower

ZAR and commodity dollars lower

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