There is no escaping the change in political mood in Europe after the publication of European Parliament election results over the weekend. There were wins for a spread of parties with manifestos against austerity, further EU integration and also immigration. On the face of it, the impact of this on markets has been pretty minimal, not least because it was widely expected. But there is a wider message that European leaders will no doubt be discussing at their meeting in Brussels later today, namely that national electorates are not happy with the EU and what it is doing (and trying to do). Ultimately, this is going to make further bail-outs and/or support mechanisms that much harder to put together in the future and any policies of further integration (which were seen as the means to avoid a future crisis) are not going to gain the required political support. For FX, it’s not something to get excited about now, but it could well be an underlying theme for the coming months.
For today, markets return from holidays in the UK and US. The data is unlikely to rock the boat, with durable goods in the US, together with house prices and consumer confidence. Note that BoE Governor Carney is due to speak this evening and markets will be sensitive to any comments on the housing market or rates, given the growing discussion of the timing of a possible first rate rise. EURGBP stands just below the 0.81 level whilst cable is sitting just below 1.69. Both rates are key to watch into month end given the potential for further sterling gains on the rate story.