Euro Fell Below $1.18 Level, Staying Under Pressure of Italian Political Situation

Market Reviews

The euro weakened against the US dollar, reaching its lowest level since December 19 and breaking an important $1.18 mark, after inflation data in the Eurozone and Germany coincided with preliminary estimates. The single currency is also under pressure of the populist policies of the coalition government in Italy. The British pound moderately weakened against the dollar, approaching the annual lows, amid the growth of the dollar index and the absence of important data on the UK.

The Eurozone inflation decreased in April, according to preliminary estimates. The final data of Eurostat showed, that CPI slowed to 1.2% in April from 1.3%in March. This rate coincided with the preliminary estimate published on May 3. On a monthly basis, consumer prices rose by 0.3% in April. Core inflation, which excludes food, alcohol and tobacco, slowed to 0.7% from 1% a month earlier.

Inflation in Germany stabilized in April, as expected earlier. The final data of the statistical office Destatis showed that consumer price index increased 1.6% on an annualized basis in April, the same growth rate that was observed in March, and in accordance with the estimate published on April 30. On monthly basis, the consumer price index remained unchanged at 0.0% in April, after growing by 0.4% in March. The preliminary assessment was confirmed.

The markets remain concerned regarding the possibilities of chaos created by a government run by the Italian anti-establishment 5 Star Movement and far-right League. These parties are planning to ask ECB to forgive EUR 250B of Italian debt. Moreover, they would seek to renegotiate Italy’s contribution to EU budget, and would also push for new Eurozone rule to allow member states to leave.

Zhang Xiangchen (China’s ambassador to WTO) said that “the US is blocking selection of new Appellate Body members, taking restrictive trade measures under Section 232 and threatening to impose tariff measures of US$50 billion of goods imports from China under Section 301 of US domestic law.” Zhang also criticized the US requests to China in order to cut its trade surplus with it by USD 200b by 2020.

US housing starts fell by 3.7% to 1.29m annualized rate in April, below expectation of 1.33m. Building permits declined by 1.8% to 1.35m. Canada manufacturing shipment rose 1.4% mom in March. Japanese industrial production increased by 1.4% mom in March.