(02 OCTOBER 2018)DAILY MARKET BRIEF 1:Renewed worries over Italian budget send EUR lower. Will it last?

The US dollar surged across the board on Tuesday morning as market participants expect Donald Trump to bring the trade war with China back under the spotlight. Even safe-haven currencies struggled to resist the broad-based dollar rally with USD/CHF rising 0.10% to 0.9855, while the Japanese yen edged higher amid positive developments on trade talks between the US and Japan. USD/JPY fell 0.15% to 113.75 during the Asian session.

The single currency continued to lose ground against the buck with EUR/USD falling to 1.1525, the lowest level since 21 August, amid renewed worries over the Italian budget. German Bunds yields have been under significant pressure since last week with the 2-year yield down 6.5bps to -0.56%, while the Italian equivalent surged 75bps to 1.50%. Today, the FTSE MIMB was down 1.80%, while the EuroStoxx 600 slid 0.55%.

For now, the risk off sentiment will prevail in the coming days as investors focus on Italy, while the trade war between the US and its main trading partners, with the exception of China, improves somewhat. However, we believe the Italian situation will resolve itself in the coming week, which would eventually push the single currency higher.

By Arnaud Masset