Euro Bounces Higher on Italy Budget Reports, Dollar Softer

On Wednesday,  The euro rebounded, snapping five days of losses as reports that Italy plans to cut its budget deficit after next year eased concerns over the prospect of a wider deficit that had rattled markets.

EUR/USD was up 0.23% to 1.1573 by 04:05 AM ET (08:05 AM GMT), rebounding from Tuesday’s one-and-a-half month trough of 1.1504.

Italian newspapers reported that Italy’s populist government will reduce its budget deficit targets for 2020 and 2021 to 2.2% and 2% respectively and stick with its plan for 2.4% for 2019.

The government had originally said it would planned to run a deficit of 2.4% over the next three years which would have breached European Union fiscal rules, spooking markets and prompting criticism from the European Commission.

Italian Prime Minister Giuseppe Conte was to hold a cabinet meeting later in the day to discuss the situation. Italy needs to send its draft budget plan to the EC by the middle of October.

The euro was also higher against the yen, with EUR/JPY climbing 0.46% to 131.87 after plumbing a two-week low of 131.18 on Tuesday.

The dollar was slightly softer against a currency basket, with the U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, sliding 0.16% to 94.99.

The dollar was higher against the yen as risk appetite recovered, with USD/JPY gaining 0.19% to trade at 113.87.

The pound inched higher, with GBP/USD last at 1.2997 after falling on Tuesday to 1.2940, the weakest level since Sept. 10 as investors remained pessimistic about prospects for Brexit negotiations.

Investors were looking ahead to data on the ISM non-manufacturing index and ADP non-farm payrolls later in the day, ahead of Friday’s U.S. government non-farm payrolls report for indications that the economy remains on track./investing.com

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