Euro and Pound Broadly Lower Amid Italian Budget Woes and Brexit Worries

Market Reviews

The euro fell against the US dollar to a 6-week low, but then rebounded somewhat. The situation with the Italian budget put pressure on the single currency after Italian Deputy Prime Minister Luigi Di Maio announced that the government is not going to change the target for a 2.4% deficit for 2019. Strong data on producer prices in the Eurozone had little impact on the euro.

However, the selloff of the euro slowed a bit after Prime Minister Giuseppe Conte said “the euro is our currency and it is for us indispensable. ” He emphasized that “any other declaration that makes a different assessment is to be regarded as a free and arbitrary opinion that has nothing to do with the government policy I chair”. Also, he defended the budget plan and said “the package of measures that we are developing aims to combine fairness and efficiency”. Also, he added large investment plan is set up to give the country modern and secure infrastructure.

Eurozone producer price index (PPI) rose more-than-expected in August. The PPI rose 0.3% month-on-month in August against market expectations of a 0.2% gain. Year-on-year, producer prices rose by 4.2% in August, against market expectations of a 3.9% increase.

The British pound weakened against the US dollar against the background of data on UK construction PMI. According to today's data, UK construction PMI fell to 52.1 in September, compared to forecasts for a reading of 52.8. The prior month’s reading was 52.9.

The pound is also pressured by the report that while UK Prime Minister Theresa May is trying to unite her party at the Conservatives annual conference, Brexit rebels are gathering a few streets away on an “alternative Brexit Advance Coalition Conference”. May’s Chequer’s plan was brutally criticized by the Brexiteers as “failing to deliver the referendum mandate”. And the rebels threatened to vote down the deal even if May could agree to one with the EU. In the meeting, it’s reported that 96% of those attended opposed to the Chequer’s plan.

Global stocks were mostly down today. In Europe, DAX dropped by 0.68% to 12203.6, CAC fell by 0.75% while FTSE lost 0.37%. Earlier in Asia, Nikkei increased by 0.1%. Singapore Strait Times dropped by 0.39%. Hong Kong HSI fell by 2.38% to close at 27126.38.

Italian 10 year yield hit 4-year high at 3.444 before dipping mildly. It’s currently up 0.058 at 3.364. German 10 year bund yield dropped to as low as 0.41and is now down -0.032 at 0.444. That is. German-Italian yield at 300 level is again closer than ever.