Tuesday Sunrise: Pound Eyes Services PMI, Euro Italian Parliament, Aussie is Day's Worst Performer, USD Looks to ISM Data

The Pound: Services PMI, Political Risks

Services PMI for May is out at 09:30, consensus forecast is for 53.1, up on April's 52.8.

The services sector accounts for over 80% of UK economic activity and it is therefore no wonder this is likely to form the data highlight for Sterling in the coming week.

The British Pound started the new week as the worst-performing major currency, and we believe political news was behind the poor performance, reporting that "Pound in the Red as Government Readies to Bulldoze their Brexit Vision Through Parliament".

We note the Pound turned lower at around the time it was announced the Government would allow only one day to debate a slew of proposed legislative changes to their European Withdrawal Bill.

The view being that this is a clear indication that the government will not take instructions from the unelected House of Lords - who defeated the government up to 15 times when reviewing the Bill - and therefore will push through their own version of Brexit.

This is important for the Pound because 1) There will be no softening of the type of Brexit the government is striving for and 2) Should the government be defeated on June 12 political uncertainty will rise rapidly with questions being asked about the future of Theresa May's government.

Euro: Italian Politics

The new Italian government is set for a confidence vote in parliament today. Prime Minister Giuseppe Conte will be speaking at 11:00 CEST before the Senate and at 12:30 CEST before the Lower House.

The vote is due to take place at 18.30 CEST and the government is expected to win by only a small majority in the Senate.

Should the government lose we could well see the Italian question flare up once more.

The composite PMI for May is released at 09:00 B.S.T. and should give a wholistic overview of Eurozone economic activity in May.

Consensus forecasts are eyeing a reading of 54.1, unchanged on the previous month.

The services PMI is released at the same time and markets will be looking for a reading of 53.9.

Any disappointment might weigh on the recovering Euro.

Australian Dollar: No Boost from the RBA

The Australian Dollar is the best-performing major global currency over the course of the past month.

However, today sees it as the worst-performing major currency on account of a reminder that Australian interest rates are going nowhere fast.

The Reserve Bank of Australia (RBA) board met today and as widely expected, the RBA Board left the cash rate on hold at 1.50%.

"The cash rate has stayed at this same level for nearly two years and there is no reason to expect a change any time soon. The accompanying statement suggests that settings will remain on hold for an extended period of time," says Best Deda, Chief Economist with St. George Bank in Sydney.

US dollar: Looking to Pick up Steam

The Dollar appears to be trading according to global risk sentiment once again, therefore we would look for overall sentiment to be important here with the rule-of-thumb being that when markets are optimistic and rising, the Dollar is headed in the opposite direction.

Looking at the headlines, and reports landing on the desk, by all accounts it would appear today has started off in a positive - therefore Dollar-unfriendly - manner.

Yet, we are seeing the Dollar make some small gains, but these are minor and could be technical repositioning more than anything.

The calendar could provide some interest. The ISM non-manufacturing PMI will catch markets attention at 15:00 B.S.T. Markets will be pricing the U.S. Dollar for a reading of 57.2, any disappointment might hurt the currency, and a beat will likely aid it higher.

"This week, expect a reversion to US-centric cues and central bank watching. The fundamental picture underlying the broad USD – economic outperformance, yield differential arguments, and shifts in USD positioning – remains largely intact. One thing holding the USD back, though, is the still cautious rhetoric from the Fed regarding its rate hike path," says Terence Wu with OCBC Bank in Singapore.

New Zealand Dollar: Looking for More Strength

The New Zealand Dollar remains one of the better performers on the markets, as we see the April-May sell-off reverse and buyers return to the currency which remains underpinned by fading political risks (new Labour-led government not so bad) and undeniably strong economic fundamentals.

"The recovery in NZD has room to extend," says a note from UOB in Singapore.

NZD/USD hit an overnight high of 0.7048 before easing off slightly, GBP/NZD has meanwhile tasted a new three-month low at 1.8901.

The improved undertone to NZD suggests to UOB that the current rebound could "overshoot".

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