Euro rises as Italian debt concerns ease; sterling builds on gains

LONDON: The euro rose on Tuesday as easing concerns about Italian debt boosted the single currency for a second day, while broader moves in forex markets were contained as investors fretted about the next developments in the Sino-US trade dispute.

Sterling was the big mover elsewhere, rallying to a fresh five-week high above $1.30 after the European Union chief negotiator's comments on Monday on the prospects of a Brexit deal underpinned demand for the pound.

Markets remain nervous about any U.S. move to slap fresh duties on Chinese goods amid heightened tension between the two economic giants, and after further falls in emerging market asset prices into early European trading hours.

The euro, however, was buoyed by a fall in Italian government borrowing costs this week after Economy Minister Giovanni Tria on Monday predicted yields would drop as the government lays out its much-anticipated budget for 2019.

The euro rose 0.4 percent to $1.1644 while the dollar index was left down 0.3 percent at 94.895, close to its lowest since late August.

"It seems to be a mixture of cautious sentiment towards the emerging markets, relief following positive comments on the part of the Italian Ministry of Finance about the Italian budget deficit and government debt, concerns about possible new U.S. tariffs on Chinese products and uncertainty ahead of the ECB meeting on Thursday," Commerzbank analyst Antje Praefcke said.

Policymakers at the European Central Bank are widely expected to leave their policy settings unchanged on Thursday.

BREXIT BOOST

Monday's reports that Michel Barnier, the EU's top negotiator, told a forum in Slovenia that it was "realistic" to expect a Brexit deal in six to eight weeks helped send the pound sharply higher to $1.3052, its highest level since Aug. 2.

It built on those gains on Tuesday, rising to as high as $1.3087.

Barnier's comments were seized on by markets as a signal the UK may avoid a disorderly no-deal Brexit. Sterling has been under pressure on worries that Britain would exit from the EU without any formal trading agreement.

"If the negotiations for Brexit go well it naturally becomes a tailwind for the pound," said Yukio Ishizuki, senior currency strategist at Daiwa Securities. "If Britain achieves Brexit without problems, the advantages for the European Union are big as well."

News that Japanese chipmaker Renesas was buying U.S. counterpart Integrated Device Technology for about $6.7 billion in cash weighed on Japan's currency.

The dollar rose 0.4 percent to 111.50 yen as investors also reduced some of their safe-haven holdings of the Japanese currency. The benchmark Nikkei 225 stock index rose more than 1 percent and on hopes of a Brexit deal.

The Swedish and Norwegian currencies gained more than half a percent as the dollar fell across the board.

The Swiss franc slipped against the euro by 0.2 percent to 1.1329 francs as the single currency's strength knocked demand for the safe-haven franc.