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Euro Holds Ground In Italian Budget Flap

Published 23/10/2018, 11:24
Updated 31/08/2022, 17:00

Is the next crisis finally here? Asian equities erased yesterday, with Chinese markets bearing the brunt. The CSI 300 fell 2.66%, while Hong Kong’s Hang Seng gave up 3.13%. In Europe, equities are also blinking red: the STOXX 600 fell 1.05% to 356 points, its lowest level since mid-December 2016.

In FX, the single currency held up surprisingly well against persistent tensions over the Italian budget. EUR/USD edged up 0.5%. Similarly, pound sterling, which rose 0.22% against the buck, trimmed losses as investors hope the European Union and UK will reach an agreement soon.

The European Commission will discuss Italy today. Italy said it would stick to its budget plans, although these breach EU rules. On Monday, Economy Minister, Giovani Tria told Brussels the budget is necessary to restore growth. Brussels usually takes a hard line against budget breaches; however, Italy insists on this one. We expect the EU Commission will reject Italy’s budget, but in a soft way that would keeps discussion open.

Therefore, we do not expect a strong reaction from financial markets. We also maintain our long EUR/USD view in the medium to long-term.

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