Euro Boosted by Hopes of Italy's Budget Revision

Market Reviews

The euro rose to a two-week high, as risk appetite improved due to firmer oil prices and news that Italy can reduce its budget deficit to reassure the European Union. British pound, Australian dollar and New Zealand dollar are also strong. US dollar, Japanese yen and Swiss franc are weak.

It was reported, that Italy may reduce the target budget deficit next year to 2% of gross domestic product to avoid a disciplinary procedure from Brussels.

The events in Italy and the news that the UK and the EU made a Brexit deal helped the single currency to overcome disappointing data from Germany. German Ifo business climate index fell to 102.0 in November, down from 102.9 in October and missed forecast of 102.3. Current assessment gauge fell to 105.4 in November, down from 106.1 in October and missed expectation of 105.6. Expectations gauge fell to 98.7, down from 99.7, missed expectation of 99.3.

On stock markets, FTSE added 0.67%, DAX gained 1.13%, CAC increased 0.58%. Earlier in Asian, Nikkei closed up 0.76%, Hong Kong HSI gained 1.73%, Singapore Strait Times added 1.34%. But China Shanghai SSE fell 0.14%.

German 10 year yield is up 0.0184 at 0.362. Italian 10 year yield is down notably by -0.132 at 3.282. German-Italian spread is now back below the 300 alarming level.

After the EU leaders approved Theresa May’s Brexit deal, the agreement also must be endorsed in the British Parliament. If the parliament rejects the deal, the Government has until that day to put forward a new plan. The government is likely to use the brinkmanship strategy, threatening to leave the EU with no-deal on March 29, 2019, if the parliament rejects the current agreement.

Bank of Japan Governor Haruhiko Kuroda clarified that the objective of the quantitative and qualitative easing problem was to lift inflation to 2% target, rather than bankrolling the government debt. He also pointed out “how to deal with the BoJ’s expanded balance sheet would be among key challenges for us when we were to exit from quantitative easing.”