GBP jumps as USD gives gains

The U.S. dollar gave up its earlier gains during Monday’s session as the British pound jumped after Prime Minister Theresa May said a Brexit transition deal between the U.K. and the EU was close.

What are currencies doing?

The ICE U.S. Dollar Index DXY, -0.01%  was little changed at 89.946, following a 0.4% loss on Friday. The broader WSJ U.S. Dollar Index BUXX, +0.06%  was also trading flat at 83.74 on Monday.

The euro EURUSD, +0.0893%  was up 0.1% at $1.2337, from $1.2321 late Friday in New York. The pound GBPUSD, +0.3405%  rallied to $1.3860 from $1.3802 late on Friday.

Meanwhile, the euro slipped versus sterling GBPEUR, +0.2410%  and was down 0.3% at £0.8900.

Meanwhile, the dollar gained some ground against the yen USDJPY, +0.28% with the greenback buying ¥105.96, compared with ¥105.74 on Friday.

Against the Canadian dollar USDCAD, +0.7684% the buck rose to C$1.2979 up from C$1.2884 late Friday.

What is driving the markets?

The dollar, which had been in focus over Trump’s comments on impending steel and aluminum tariffs late last week, has stepped back out of the spotlight, as traders focused on political developments in Europe. The official announcement of new wide-ranging tariffs is expected for later in the week though, when the dollar should come back into the foreground.

The buck fell for two days late last week after Trump revealed the new levies, adding in a tweet that “trade wars are good, and easy to win.” On Monday, the president tweeted about the tariffs with respect to Canada and Mexico, indicating neither would be exempted unless a renegotiated Nafta deal is signed.

Donald J. Trump✔@realDonaldTrump

We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must..

12:47 PM - Mar 5, 201843.9K18.1K people are talking about this

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In the U.K., PM May spoke in parliament, saying that a Brexit-transition deal with the European Union was close and that she was confident the remaining differences would get resolved, which led the pound to reverse its modest losses and rally higher versus the U.S. dollar.

Elsewhere in Europe, analysts assessed the outcome of the Italian election which didn’t produce a clear winner but showed a surge in support for antiestablishment, euroskeptic parties. The euro, which had started the day softer, got bumped into modestly positive territory as the U.S. dollar declined.

The 5 Star Movement—one of Europe’s largest populist parties—is set to emerge as the biggest party, with around one-third of the vote. The far-right Lega Nord was expected to come in third, just behind the ruling Democratic Party.

The result suggests a coalition will be needed for a government to formed, but none of the potential coalition groups appear to have enough support to avoid a hung government. That means Italy could be facing a period of political wrangling and uncertainty as the parties try to hammer out a coalition deal.

Germany was left in a similar situation after the general election in September gave no party an outright majority. Only this weekend did the government makeup fall into place. The Social Democratic Party on Sunday agreed to go into a coalition with Angela Merkel’s conservative Christian Democratic Union in a members vote, ending five months of uncertainty in Europe’s largest economy.

What else could drive markets?

The Markit services PMI for February read 55.9, versus 53.3 before.

The ISM nonmanufacturing data for the same month came in at 59.5, slightly down from the near 12-month high of 59.9.

Source: marketwatch.com