Italy budget was rejected by the EU for failing to comply with euro zone rules. However, the euro strengthened on Wednesday on hopes for a compromise in the row over Italy’s budget.
The European Commission started to discipline Italy over its draft budget. EU suggested that the government should face action from the EU to reduce its deficit.
However, this did not stop the single currency from rallying to a day’s high of $1.1418, up 0.4%. The Italian Prime Minister expressed his worries about the government bond spread and said Italy would respond with reforms.
The euro spiked earlier on a report that Deputy Prime Minister may be open to reviewing the fiscal plan.
The euro has risen in six out of the last seven sessions. Though analysts said the currency remained vulnerable to the political risks emanating from the third-largest economy of the euro zone.
Forex – Commodities – Italy budget rejected by the EU – Euro traders still hope
The euro’s strength weighed on the dollar index, a measure of performance against six major currencies, which fell 0.2%. The index gained 0.65% the day before.
The dollar has been supported by investors seeking out the safe-haven currency on mounting concern about a U.S.-China trade war. The greenback felt some downward pressure this week from comments by Fed officials expressing concern about a potential global slowdown. Those comments led some investors to bet the rate-hike cycle was near its end.
The safe-haven Japanese yen fell 0.4 percent to trade at 112.71. Despite its safe-haven status, the yen’s strength has been muted. Analysts suspect this is because Japanese investors have kept their money in U.S. and foreign markets, rather than bring it home.
The British pound traded up 0.2% at $1.2808 after losing 0.5% against the dollar on Tuesday. The pound is expected to trade sideways until the market gets more clarity on progress in the Brexit deal.
The Canadian dollar dropped to a 4-month low versus the dollar. The price of crude fell to its lowest level in more than a year. Canada is one of the world’s top oil exporters.
Elsewhere, the Australian dollar, often considered a barometer of risk appetite, gained 0.4% to trade at $0.7245. The Aussie dollar lost more than 1 percent on Tuesday as global risk sentiment worsened.
Sources: Reuters, CNN money, BBC
PLEASE NOTE The information above is not investment advice.