he resignation of recently appointed Prime Minister, Giuseppe Conte, over the weekend had concerned investors that a snap election could be called in autumn, one which may have become a quasi-referendum on Italy’s membership with the Euro. News of fresh talks between the two populist parties, Five Star Movement and the League, has, however, eased concerns and ignited hope that another election could be avoided.

A massive jump in the Euro-area inflation this morning provided further reason to be optimistic over the outlook for the Euro. The headline and core numbers both accelerated, the former spiking to a more than one year high at 1.9% versus the 1.6% consensus. Regardless, the common currency could still be set to post its largest monthly drop in three years today, with a combination of broadly softer economic news out of the Eurozone and a stronger US Dollar hammering the currency this month.

US economic growth revised down, eyes on payrolls report

A string of slightly disappointing data releases out of the US yesterday also weighed on the Dollar against most major currencies.

There was a downward revision to the first quarter US growth figures, albeit only a very modest one. The US economy grew by 2.2% annualised versus the initial 2.3% estimate, with consumer spending rising at its weakest pace in nearly five years. This comes despite the passing of Donald Trump’s massive tax cuts in December, which many analysts expect could add as much as 0.5% to overall GDP this year. The ADP employment change number, seen as a good gauge for the strength of the more significant nonfarm payrolls number, also undershot expectations. Job creation in the US private sector came in at 178,000 versus the 190,000 consensus, which far from helped the greenback yesterday.

Attention turns to Friday’s US labour report, which is expected to show a modest acceleration in wage growth for May.

UK markets quiet, Pound driven by events elsewhere

A broadly weaker US Dollar helped Sterling rise back above the 1.33 mark on Thursday morning, despite a complete lack of major economic data releases in the UK. With the Bank of England recently stressing that monetary policy remains heavily dependent on macroeconomic news, we think that upcoming data releases take on added importance. We therefore look ahead to Friday’s UK manufacturing PMI release as the next potential market mover.