03/01 – Italian political risk melts away

03/01 – Italian political risk melts away

GBP: Services sector news at 09.30

EUR: Draghi back but this time in politics

USD: Driving onwards


While sterling remains able to push higher against the euro, its performance against the USD remains lacklustre. Even news that the UK’s plans on delaying the 2nd dose of Covid-19 jabs by 12 weeks helps cut transmissions by up to 67% were unable to help yesterday. Our hope remains that the vaccine differential – the rate at which the UK continues to outperform its peers in rolling out the vaccine – continues to support sterling.

UK data focuses on the services sector at 09.30 this morning with the latest PMI sentiment index set to show a sector that remains on its knees.


“Whatever it takes”. These were the immortal words of the former ECB President Mario Draghi in 2012 when telling the market that the ECB would do whatever it needed to do to protect the single currency. At midday today, Draghi will have a job interview to become the Italian Prime Minister in a bid to form a government of national unity in order to avoid elections.

Italian bond yields have fallen in a gesture of confidence and solidarity with local equities also moving higher. The euro has not benefited however, Draghi’s record was one of a weaker euro when at the ECB and we would expect his government would push for similar.

Vaccine news continues to hamstring the euro for the moment but a ramp-up of the rollout should prove to be supportive. In the meantime, as we head into the end of the week we are watching the European data calendar nervously; releases both tomorrow and Friday could further undermine the single currency.

US dollar

The dollar remains on the front foot this morning, following a strange day of market moves. You typically see bond yields rise, the dollar rise and equities fall but yesterday saw all three move higher. It stands to reason therefore that something is not telling the truth and will rebound quickly. For me, currently it looks like equities may be the asset to reverse but movement on stimulus in Washington should bring about a weaker USD.

Stronger ISM sentiment numbers from the US services industry this afternoon will also support the USD, as the narrative now shifts from when stimulus will arrive to how much does a recovering economy really need?


A surprise improvement in the jobless rate in New Zealand overnight has boosted the NZD as investors reprice the possibility that the Reserve Bank of New Zealand no longer needs to push a narrative of lower interest rates or more stimulus.

The next RBNZ meeting is three weeks today with no speeches planned between now and then for us to gain an insight into how much weight the central bank puts into one improvement in the jobless rate.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.