Euro sinks after Italian official calls to ditch common currency

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2 October 2018

thomasdodds

The Euro was back on the defensive again on Tuesday, slipping towards the 1.15 level and its lowest level since mid-August.

C
oncerns over Italian politics continue to dominate the newswires, even following Thursday evening’s budget agreement. The latest slide in the common currency was fuelled by comments from a senior official from Italy’s ruling coalition government, Claudio Borghi, who suggested the resolution of the country’s current economic problems would be resolved should the Euro be scrapped as its currency. This is a fairly concerning comment given Borghi, who is a staunch eurosceptic within the League Party, is currently in charge of the country’s economic policy.

Markets have grown increasingly anxious that Italy could follow the UK’s lead and leave the bloc since the election, albeit it is worth noting that recent polls suggest a mere 34% of Italian’s would back an exit from the European Union. Regardless, it is something the FX markets will be paying close attention to in the coming days.

Conservative Party conference key for Sterling this week

The Pound was also on the back foot this morning, slipping to a three week low as investors remain wary over the state of Brexit amid this week’s Conservative Party conference. Sterling had briefly rallied on Monday morning on news that the UK government was ready to back down on its demands over the Irish border. These gains were, however, reversed over the course of the trading session, with Theresa May’s resolute defence of her so called ‘Chequers’ plan ensuring concerns remain over the chances of an amicable EU exit come the 17-18th October EU summit.

News out of the Conservative Party conference will remain the biggest driver for Sterling over the next couple of days, particularly given the lack of major UK economic data.

Canadian Dollar rallies to four month high on US trade agreement

Away from the main G3 currencies, one of the biggest headlines over the past few days has arguably been the news that the US and Canada had finally agreed upon a long awaited trade deal to update the existing North American Free Trade Agreement (NAFTA).

News of a last minutes deal, which is being called the United States-Mexico-Canada Agreement (USMCA), caused investors to breathe a sigh of relief, sending the Canadian Dollar to a four month high. The deal itself yielded concessions on both sides. Canada conceded on dairy imports, instead agreeing to the terms that were initially negotiated as part of the Trans-Pacific Partnership (TPP). The US, meanwhile, agreed not to impose tariffs on autos, while also maintaining Article 19, the latter of which will serve as a forum for resolving any trade disputes. This essentially marks a reworking of NAFTA, an agreement that US President Trump has long been opposed to. It will be welcome news to all those concerned, given the country’s heavy reliance on the US for almost three-quarters of Canada’s overall export revenue.