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Italian concerns weigh down euro, dollar buoyed by trade hopes

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05/14/2019 | 02:29pm EDT
FILE PHOTO: The German Bundesbank presents the new 50 euro banknote at it's headquarters in Frankfurt

NEW YORK (Reuters) - The euro slid against the dollar on Tuesday after Italy’s deputy prime minister said the country is ready to break European Union budget rules on debt levels if necessary to spur employment.

"If we need to break some limits, like the 3% (deficit-to-GDP ratio) or 130-140% (debt-to-GDP ratio), we're ready to go ahead," Matteo Salvini, Italy's deputy prime minister, said. "Until we arrive at 5% unemployment, we will spend everything that we should and if someone in Brussels complains, that won't be our concern."

Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said "renewed Italian concerns" were affecting the market.

Salvini's coalition partner, Luigi Di Maio, later told reporters that it was "pretty irresponsible" to create market tensions by speaking about increasing Italy's high debt level.

The dollar was also buoyed as U.S. and Chinese officials said the two countries would continue to negotiate on trade.

U.S. President Donald Trump insisted on Tuesday that trade talks with China had not collapsed and called the widening U.S.-China tariff war "a little squabble," even as his administration readies 25% duties on all remaining Chinese imports.

Continuing uncertainty over whether an agreement is likely should support safe-haven currencies, including the dollar and the Japanese yen, Thin said.

“There is too much uncertainty," Thin said. "I think things will get worse before they get better.”

Investors are also focused on whether Trump will impose tariffs on imported cars and auto parts as talks continue with the European Union and Japan.

Trump received a "Section 232" investigation report in February, widely believed to have concluded that car and auto part imports pose a risk to national security. The president's 90-day deliberation period is due to end on Saturday.

Sterling dipped to two-week lows as British employment data showed wage growth in the quarter ending March was lower than expected, signaling the possible start of a turbulent period for the broader economy. Concerns about Britain’s exit from the European Union are also weighing on the British currency.

Britain's opposition Labour Party said on Tuesday that Prime Minister Theresa May had not yet made a shift in Brexit talks and that the party was concerned a future Conservative leader could renege on any promises made by the current government.

(Reporting by Karen Brettell; editing by Jonathan Oatis and Leslie Adler)

By Karen Brettell

Stocks mentioned in the article
ChangeLast1st jan.
EURO / BRITISH POUND (EUR/GBP) -0.41% 0.89125 Delayed Quote.-0.96%
EURO / US DOLLAR (EUR/USD) -0.22% 1.11952 Delayed Quote.-2.19%
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