Euro rally fades despite easing Italian concerns and
Brexit deal hopes
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[September 11, 2018]
By Tommy Wilkes
LONDON (Reuters) - The euro's bounce
fizzled on Tuesday as a broad dip in investor appetite for risk dragged
the single currency lower, offsetting recent positive sentiment toward
Italian government debt before a central bank meeting later this week.
Broader moves in forex markets were contained, with investors fretting
about the next developments in the continuing trade dispute between
China and the United States.
Sterling was the big mover, rallying to a five-week high above $1.30
after the European Union chief negotiator signaled somewhat improved
prospects of a Brexit deal.
The euro was buoyed by a fall in Italian government borrowing costs
after Economy Minister Giovanni Tria on Monday predicted that yields
would drop as the government lays out its eagerly awaited 2019 budget.
The single currency initially rose 0.4 percent to $1.1644 <EUR=>,
building on Monday's advance before erasing those gains to trade down
0.1 percent at $1.1584.
The dollar index <.DXY> rose 0.1 percent to 95.228.
"This seems to be some sort of broad risk-off mood. It's nothing
particular for the euro," said Societe Generale analyst Alvin Tan.
He does not expect there to be much impact on the single currency from
the European Central Bank's policy meeting on Thursday.
"If the Italian [government bond yield] spreads narrow further that's
going to be the bigger driver of the euro," Tan said.
Positioning data on Monday showed that speculators cut their net long
dollar positions, suggesting investor nervousness about a further run-up
in the greenback.
Analysts say there needs to be some clarity about the U.S.-China trade
dispute before the world's most traded currency pair can find fresh
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A two Euro coin is pictured next to a one Pound coin on top of a
portrait of Britain's Queen Elizabeth in this file photo
illustration shot March 16, 2016. REUTERS/Phil
"Euro/dollar has come to a bit of a standstill," said Neil Mellor, a strategist
at BNY Mellon.
Markets remain nervous - Asian and European stocks fell on Tuesday - about any
U.S. move to slap fresh duties on Chinese goods and after further falls in
Reports on Monday that Michel Barnier, the EU's top negotiator, told a forum in
Slovenia that it was "realistic" to expect a Brexit deal in six to eight weeks
helped the pound to its highest level since Aug. 2.
It built on those gains on Tuesday, rising to as high as $1.3087, before falling
Barnier's comments were seized on by markets as a signal that Britain could
avoid a disorderly no-deal Brexit.
News that Japanese chipmaker Renesas <6723.T> was buying U.S. counterpart
Integrated Device Technology <IDTI.O> for about $6.7 billion in cash weighed on
Japan's currency, which was down 0.3 percent at 111.41 <JPY=> against the
The Australian dollar fell below $0.71 to its lowest since February 2016 on
concerns that potential damage to the Chinese economy from a trade war would
also hit Australia's vast export industries. The Australian currency later
recovered slightly to trade down 0.2 percent at $0.7104 <AUD=>.
"The Australian dollar is an acid test of global risk [appetite] and it is
faring badly," BNY Mellon's Mellor said.
The New Zealand dollar <NZD=> also hovered near a 2-1/2 year low. China's
offshore yuan fell 0.2 percent to 6.8836 <CNH=>, a 2-1/2 week low.
(Editing by Andrew Heavens and David Goodman)
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