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Forex market responds to Italy’s latest budget moves

The euro began to recover during Wednesday’s trading after it was revealed that the Italian government does plan to meet a borrowing target after all.

The Italian government caused nervousness in Europe this week when it said it would aim for a borrowing target of 2.4% of its GDP rather than the EU-wide standard of 2%.

The previous government’s target was a third of this new aim, and leaders in other European countries expressed fear about the move. However, a report in the Italian newspaper Corriere della Sera said that the Italian government is actually planning to meet the 2% target over time and that by 2021 it expects to have met it all together.

As a result of the news, the euro managed to climb by 0.35% to $1.1585 when trading began. It dropped yesterday when the story first broke, and over the course of the evening the EUR/USD pair dropped to a six-week or so low point of $1.1505.

While prospects for the euro were looking bright yesterday, two other major global currencies dipped.

The US dollar index, which assesses how it is performing compared to other major currencies, dropped by a quarter of a percentage point to 95.288.

While the Japanese yen was down on the whole, and it was one currency the dollar did manage to beat.

The remainder of this week looks busy across the rest of the forex markets too.

This afternoon sees a major speech from British Prime Minister Theresa May, who will address members of her Conservative Party at 12pm GMT. The market-moving topic of Brexit is likely to make an appearance.

Over the Atlantic in the US will be a further significant speech, this time from the Federal Reserve central bank’s Jerome Powell.

This will be followed tomorrow by significant US employment market data. Continuing jobless claims are expected to rise from 1.661 million to 1.665 million when they are made public at 12.30pm GMT, while initial jobless claims are expected to drop somewhat from 214,000 to 213,000.

The day will finish with a speech from Benoît Cœuré, a member of the European Central Bank’s executive board, at 5pm GMT.

Looking to Friday, the day will kick off with a series of important Japanese releases. The preliminary leading economic index for August and the coincident index for August will both come out at 5am GMT.

At 6.45am GMT, France’s trade balance data will be out, as will its budget and current account information.

Switzerland’s foreign currency reserves information for August will come out 7am GMT, while its consumer price index information for September will be out at 7.15am GMT. Month on month changes for the latter are expected to remain at 0%.

More employment data follows from the US, with nonfarm payrolls and average hourly earnings both expected at 12.30pm GMT.

In Canada, the unemployment rate will be revealed at 12.30pm GMT. A small decline in the rate is expected by analysts, from 6% to 5.9%.

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