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Euro US Dollar (EUR/USD) Exchange Rate Retreats on Italy Budget Concerns

EUR/USD Exchange Rate Shaky as Italy Seeks Larger Budget Deficit

The Euro US Dollar (EUR/USD) exchange rate is trending lower this morning as sentiment in the single currency weakens following the publication of Italy’s 2019 budget.

At the time of writing the EUR/USD exchange rate has fallen around 0.3% from this morning’s opening levels, leaving the pairing over a cent down from Thursday and at a new two-week low.

Euro (EUR) Exchange Rates Pressured as Italy’s Budget Raises Concerns

The Euro (EUR) is on shaky ground this morning, with the single currency edging down against the majority of its peers after Italy’s government agreed to target a budget deficit of 2.4% of GDP in 2019.

The decision came after Italy’s economy minister Giovanni Tria succumbed to pressure by the ruling parties to target a larger deficit to allow for increased public spending.

However the budget puts Italy on a collision course with Brussels as the EU sought a deficit of no more than 2% of GDP.

Furthermore analysts rose concerns that the new budget will likely add to Italy’s considerable debt, something which is ‘an accident waiting to happen’ according to Holger Schmieding, chief economist at Bernberg bank.

US Dollar (USD) Buoyed by Fed Hike, Robust Data

At the same time the US Dollar (USD) remains buoyant this morning in the wake of the Federal Reserve’s rate decision and some robust US economic data.

The Fed voted to raise interest rates by 0.25% on Wednesday, in a move that was widely forecast by currency markets.

The rate decision was also accompanied by a broadly hawkish statement from the Fed, in which the bank signalled that strong growth will see rates continue to rise at an accelerated pace over the coming twelve months.

Jeffrey Kravetz, regional investment director at the Private Client Reserve of U.S. Bank said:

‘The Fed’s statement is essentially a green light for the economy. It’s a confirmation that the U.S. economy is the best game in town for global investors.’

Lending further strength to the US Dollar was also the latest round of US data, with GDP confirmed to have surged 4.2% in the second quarter while US durable goods orders rebounded sharply from -1.2% to 4.6% in August.

EUR/USD Exchange Rate Forecast: Will Rise in US Inflation Bolster the ‘Greenback’

Looking ahead, the Euro US Dollar (EUR/USD) exchange rate could face additional pressure this afternoon, with the release of the Federal Reserve’s preferred measure of inflation, the PCE Price Index.

Economists forecast today’s data will reveal inflationary pressure continued to build in the US last month, likely leading to further gains in the US Dollar as it bolsters expectations the Fed will remain on course for multiple rate hikes over the coming twelve months.

Meanwhile with the Eurozone having exhausted its data releases for the week, EUR investors may now turn their focus towards next week’s session and the publication of the bloc’s latest unemployment figures.

This could help the Euro mount a recovery should the jobless rate fall below a ten-year low of 8.2% in August.