US Dollar Down on Fed Bets, Euro Up on Italy Hopes and ECB View

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TALKING POINTS – US DOLLAR, FED, EURO, ITALY, ECB

  • US Dollar down as APAC markets on-board payrolls data miss
  • Euro outperforms, limited scope for ECB easing may be catalyst
  • Italian Deputy PM Salvini may signal softened stance on budget

The US Dollar traded broadly lower in Asia Pacific trade, losing ground against all its major currency counterparts. The move seemed to reflect regional traders’ belated response to Friday’s jobs data, which showed nonfarm payrolls grew less than economists expected in November.

The outcome weighed heavily on Fed rate hike bets. The 2019 tightening path implied in interest rate futures flattened, with markets now seemingly questioning scope for even a single rate 25bps increase. The chance of a rise in December remains better-than-even at 69.1 percent however.

Interestingly, the Euro proved to be strongest on the session. That this occurred as regional shares followed Wall Street lower amid global slowdown fears might imply a relative appeal because the ECB has very little room to expand monetary stimulus in the near term.

Indeed, benchmark lending rates are already in negative territory and the Governing Council has all but pre-committed to ending QE asset purchases by the end of the year. In fact, it is widely expected to confirm as much with this week’s policy announcement.

Politics may overshadow everything else in the hours ahead however as comments from Italian Deputy Prime Minister Matteo Salvini hit the wires. The single currency may rise further if he echoes rumors that the government in Rome is prepared to revise its budget to bring the deficit in line with EU norms.

The authorities in Brussels previously pushed the administration to change its fiscal framework, only to be rebuffed. Reports now suggest Prime Minister Conte might meet with European Commission President Jean-Claude Junker Wednesday to mend fences ahead of an EU leaders’ summit Thursday.

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ASIA PACIFIC TRADING SESSION

US Dollar Down on Fed Bets, Euro Up on Italy Hopes and ECB View

EUROPEAN TRADING SESSION

US Dollar Down on Fed Bets, Euro Up on Italy Hopes and ECB View

** All times listed in GMT. See the full economic calendar here.

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