ith the anti-establishment Five-Star Movement Party and The League looking on course to form a coalition government in Italy following March’s election, details on the coalition agreement have begun to leak. While both parties have eliminated any language that calls for an exit to the Euro, talk that the coalition agreement could involve asking for $250 billion sovereign debt forgiveness from the European Central Bank unnerved investors. The prospect of a new, untested government creates a particularly uncertain backdrop in a country that is already suffering from weak growth and one of the highest debt-to-GDP ratios in the Euro-area.

An increase in US bond yields also supported the greenback yesterday, extending its gains to almost 1.5% for the week. Macroeconomic news out of the US continued to provide reasons to be optimistic over the health of the US economy. Industrial production and building permits data both beat expectations on Wednesday, adding to the recent stream of news suggesting that the world’s largest economy is powering ahead at a much faster pace than the rest of the developed world.

Macroeconomic news out of the US and Eurozone is fairly light today, so EUR/USD could remain fairly range bound. We look to a speech from senior ECB rate setter Constancio today for any comments on the recent soft core inflation news out of Europe.

Sterling recovers after EU customs union report

Concerns over the Brexit negotiations reared its ugly head again yesterday, pushing the Pound towards a fresh 2018 low. A combination of doubts over whether the Bank of England will raise interest rates, at all, this year and the less than clear picture regarding the state of negotiations ensured the Sterling’s position as one of the worst performers, so far, this month.

With the clock ticking to next year’s exit deadline, divisions within the UK government over what a post-Brexit relationship with the EU will entail remain. There have also been repeated complaints from EU officials that Britain has been unclear on its demands, further clouding the negotiation outlook. A report released suggesting that Britain was ready to tell Brussels it would stay in the EU’s customs union beyond 2021 did, however, cause the Pound to rally this morning.

With no economic data releases on the docket in the UK today, the Pound could be driven more by events elsewhere. We don’t expect this afternoon’s speech from Bank of England member, Andy Haldane, to be a particularly significant market mover.