Euro weakness subsides until tomorrow. Spanish PM facing vote of no confidence.

As market fears over the political situation in Italy eased on Wednesday this returned the GBP/EUR exchange rate to a weaker footing. Confidence in the Euro was temporarily restored by an unexpected improvement in the German unemployment rate. However earlier this morning we saw the Euro zone employment rate hold firm from last months reading of 8.5%, a 0.1% drop was forecast by analysts.

The Euro could yet find more support from Spanish politics this time. Spanish PM Rajoy is facing a vote of no confidence on Friday and if confirmed, as we’ve seen already, this will weaken the Euro however a positive result for PM Rajoy will support the Euro.

In the US, today’s focus will also be inflation with the release of the Fed’s preferred measure of US inflation – the ‘core’ PCE deflator – for April. Relevant information from last week’s US CPI report for April suggests that the ‘core’ PCE deflator increased by just 0.1% m/m, which would see the annual rate ease to 1.8% from 1.9%.

Elsewhere, following yesterday’s upbeat assessment of Canadian economic activity by the Bank of Canada, today’s preliminary estimate of Q1 GDP will be closely watched. An acceleration in growth is expected, to 1.9% from 1.7% in Q4, raising the likelihood of another quarter-point hike in interest rates later this year. 

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