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The US dollar rose on Wednesday, driven by Federal Reserve policymaker Charles Evans’ remarks about inflation expectations and December rate hike.

The US dollar index, which measures the greenback’s strength against a basket of other major currencies, was up 0.08 percent to $95.21, wiping away its losses against the euro which climbed earlier in the day.

FX strategist Junichi Ishikawsa stated that recent euro weakness has lifted the dollar but that fundamental factors after the Fed hiked interest rates last month had played a bigger role.

The dollar index has added around 1.4 percent since the Fed moved last week and said it expects another rate hike in December.  

Against the yen, the dollar gained 0.2 percent to 113.90.

Strength of the greenback came after Evans said inflation have not increased as much as he would have preferred and he was comfortable with a December rate hike.

Getting US interest rates up to a slightly restrictive setting of 3.0 or 3.25 percent would be consistent with the strong US economy and its inflation rate, according to Evans.      

US data due later in the day, such as the non-manufacturing ISM index, will provide a chance to see if the economy is performing in with the Fed’s views, Ishikawsa stated.

Euro Gains Cut Short after Evans’ Comments

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The euro fell on Wednesday against the dollar, following Evans’ comments after the currency cut off five days of declines earlier in the session on news about Italy’s plans to reduce its budget deficit for the next three years.

The euro was down 0.1 percent to 1.1533 against the US dollar. The currency hit a 1-1/2 month low of 1.504 on Tuesday.

Doubts over Italy’s debt fiscal plans and potential alliance with Europe have left markets on edge recently and aggravated tensions with other euro zone leaders.

The situation weighed down the euro as a result, hitting a 6-week low after a senior lawmaker suggested that Italy should readopt a national currency, leading to a wide market sell-off.

The euro rebounded earlier in the session after a government source from the right-wing League party stated that Italy’s government target for the budget deficit will be gradually cut to 2.2 percent of gross domestic product (GDP) in 2020 and to 2 percent in 2021 from an expected 2.4 percent next year.

FX strategist Thu Lan Nguyen said the Italian government is trying to appease its European Union (EU) partners can be seen as a step in the right direction and therefore justifies some euro-positive reaction.

The euro’s recovery will only continue if the new fiscal plans are also feasible, according to Nguyen.

Economy Minister Giovanni Tria announced on Wednesday that Italy’s populist government will reduce its budget deficit targets from 2020, after investors sold off Italian assets and EU ministers disapprove of its plans to increase spending in 2019.    

The deficit will climb compared with the previous forecast next year, but then there will be a gradual cut in the following years, Tria stated, without specifying what the targets would be.  

Against the yen and the Swiss franc, which are both safe-haven currencies, the euro advanced 0.2 percent to 131.55 and 0.4 percent to 1.1410 respectively.

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