Forex: Monday’s review

The euro dropped more than 1 percent versus the dollar and yen as Italy’s borrowing costs increased at a five-year note sale, stoking concern its new government will struggle to contain debt turmoil. Italy’s Treasury auctioned 3 billion euros ($4.1 billion) of September 2016 notes, the maximum target. The yield was 6.29 percent, up from 5.32 percent at the previous auction and the highest since June 1997. Demand rose to 1.47 times the amount on offer, from 1.34 times last month.  Former European Union Competition Commissioner Mario Monti will head a new government as Italy reaches outside the political arena for a leader to restore confidence in its ability to cut the euro region’s second-biggest debt. Italy’s President Giorgio Napolitano offered the position of premier to Monti after the resignation of Silvio Berlusconi.

Yields on Spanish 10-year bonds rose above 6 percent today for the first time since Aug. 5. The European Central Bank was said to resume its purchases of government debt, including buying Spanish and Italian securities, on Aug. 8.

The franc snapped a two-day gain versus the dollar, sliding to 90.86 centimes versus the dollar, after the Federal Statistics Office said producer and import prices decreased 1.8 percent last month from a year earlier. Swiss National Bank President Philipp Hildebrand is proving intervention in foreign-exchange markets can succeed as speculators bow to his decision to cap the franc against the euro as he seeks to stave off the threat of deflation. The currency has depreciated 10 percent against the euro and 13 percent versus the dollar since Sept. 5, the day before the central bank imposed a ceiling at 1.20 per euro.

Sterling fell to $1.5899 after the Chartered Institute of Personnel and Development said its gauge of U.K. hiring fell to minus 3 in the fourth quarter from minus 1 in the previous three months.

EUR/USD: yesterday the pair fell and lost two figures.

GBP/USD: yesterday the pair fell and lost two figures.

USD/JPY: yesterday the pair continued decrease.

European data for Tuesday sees flash Q3 GDP data including France at 0630GMT, which is expected to come in at 0.4% q/q, while Germany at 0700GMT is expected to rise 0.5%. At 0915GMT, ECB Executive Board member Juergen Stark is due to give a speech entitled "Prospects of monetary policy in the euro area," in Luxembourg. EMU data continues at 1000GMT when the Q3 flash GDP is expected to rise 0.2% q/q. Trade data for September is also due at the same time. Also at 1000GMT, the German ZEW data is due. The current conditions measure is expected to slip to a reading of 32.0, while the economic sentiment measure is also expected to decline to a reading of -52.5. UK data at 0930GMT sees CPI. October was, undoubtedly, another month of very high inflation in the UK with the impact of hikes in domestic energy tariffs still coming through. US events start at 1230GMT when St. Louis Fed President James Bullard is due to deliver a speech on the economy outlook to the CFA Society of St. Louis. US data starts at 1245GMT with the weekly ICSC-Goldman Store Sales data. Also at 1300GMT, Chicago Fed President Charles Evans is due to deliver a speech to the Council on Foreign Relations in New York. US data continues at 1330GMT with Retail & Food Sales, PPI and also the NY Fed Empire State Survey.The weekly Redbook Average is then due at 1355GMT.