Euro near one-week low as Italian budget raises EU political risks

Euro near one-week low as Italian budget raises EU political risks

SINGAPORE,. The euro hovered near a one-week low against the dollar today as the European Commission’s criticism of Italy’s populist budget sparked fresh concerns about political tensions in the common currency zone.

The dollar index, a gauge of its value against major peers, was 0.05 per cent higher at 95.96 today, having closed on Thursday at its highest level since August 21. The index’s rise was due to the steep fall in the euro on Thursday, which constitutes around 57 per cent of the index.

The euro was relatively flat at US$1.1454 (RM4.7644) today, having fallen 0.4 per cent yesterday, its lowest level since October 9 after the European Commission said Italy’s 2019 budget draft is in serious breach of European Union budget rules.

The Commission said in a letter to Italian Economy Minister Giovanni Tria, that planned government spending was too high, the structural deficit ? excluding one-offs and business cycle effects ? would rise instead, not fall, and that Italian public debt would not come down in line with EU rules.

This has sparked investor concerns about more political tensions in the EU between Brussels and member states, which has hurt the euro.

The gap between Italian and German 10-year bond yield spreads hit its widest level in 5-1/2 years after news of the Commission letter broke.

Markets were not cheered by Italy’s response as Italy’s prime minister defended the nation’s free spending budget yesterday.

“The euro decline reflects the build up of political tension in the eurozone,” said Sim Moh Siong, currency strategist at Bank of Singapore.

“The next support for the euro is at 1.1430, a break of which can take us down to 1.13,” added Sim.

The British pound hit a fresh 11-day low today, but rebounded slightly to quote at US$1.3020 versus the dollar.

Traders placed bearish bets on the sterling as a EU-UK summit failed to yield a decision on Britain’s exit from the euro zone.

British Prime Minister Theresa May, yesterday said that the European Union’s proposal on the Irish border was unacceptable.

“Unless we get positive noises from Brussels, the impasse on Brexit and softer economic data suggests that the pound could underperform,” said Boris Schlossberg, managing director of currency strategy in a note.

The Japanese yen weakened slightly versus the dollar today, to trade at 112.31.

The greenback lost 0.4 per cent of its value to the yen yesterday, reflecting the global risk-off mood due to rising geopolitical tensions between the US and Saudi Arabia, European political risks arising out of Italy and US-Sino trade war tensions.

Wall street benchmark equity indices also tumbled more than 1.2 per cent each, with technology stocks leading the pack. ? Reuters