Dollar edges higher as Italian budget drama weighs on the euro

Dollar edges higher as Italian budget drama weighs on the euro

As U.S. equities stumble, the Japanese yen has surged, to ¥113

The U.S. dollar strengthened on Monday against most of its major rivals to begin the week.

The ICE U.S. Dollar Index DXY, +0.18% a measure of the greenback against six major counterparts, strengthened to 95.739, up 0.2%. The index reached an intraday high of 96.03.

The euro, EURUSD, -0.2262% which accounts for more than 50% of the popular index, was trading at $1.1492, compared with $1.1523 on Friday, as political concerns out of Italy weighed on the common currency. Earlier in the New York session, the euro traded to $1.1461, a seven-week low.

“The euro remains under pressure at the start of the week with Italian government bond yields rising further, dragging the 10-year BTP/Bund spread out to nearly 300 basis points, pointing to a weaker euro,” wrote Nick Cawley, analyst at DailyFX. Three hundred basis points is equates to 3 percentage points.

“The latest move higher in Italian yields reflects increasing concerns from the EU Commission that Italy’s budget is a ‘source of concern’ prompting fears of a showdown between the two. Italian 10-year yields have doubled since early May and are likely to test 4.00% in the short-term.”

After surging above $1.31 on Friday, the British pound GBPUSD, -0.3666% has surrendered gains and traded at $1.3092 versus $1.3115 late Friday in New York.

Meanwhile, the Canadian dollar USDCAD, +0.1929% is trading 0.2% lower against the buck as slumping oil prices weigh on the commodity-dependent currency. The loonie is on a five-day losing streak against its southern neighbor and oil settled lower for a third consecutive session. One dollar last bought C$1.2961, compared with C$1.2942 late Friday.

The Japanese yen was the lone G-10 currency to outperform the buck early Monday. The yen has rallied amid broad-based equity weakness that has been led by China where both Shanghai SHCOMP, +0.17% and Shenzhen 399106, -0.09% finished down more than 3.5%. A single dollar was last buying ¥113.02, compared with ¥113.71 on Friday.

The Brazilian real USDBRL, -0.0529% surged more than 2% after far-right candidate Jair Bolsonaro won 46% of the votes in the first round of the presidential elections. The man dubbed as the Brazilian Donald Trump is now a favorite to win the final vote Oct. 28.

The move in the real has industry participants eyeing a key momentum indicator. “The low in July/Aug was around 3.6870 in spot terms and that is the next level to watch with the 200-dma just below there around 3.6051 after that,” wrote Brad Bechtel, managing director at Jefferies LLC, referring to the currencies long-term 200-day moving average.

Elsewhere, the slide in the Australian dollar AUDUSD, -0.1130% has abated for now with the Aussie trading at $0.7067, compared with $0.7051 on Friday.

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