Euro under pressure as Italy sticks to deficit target in budget

LONDON: The euro struggled below $1.13 on Wednesday as Italy stuck to its deficit target in a re-submitted draft budget and after confirmation that the euro zone economy grew at its slowest pace in four years in the third quarter.

Major currencies traded in tight ranges in London trading hours, with the dollar below a 16-month high hit this week as investors took profits.

Sterling slipped as investors prepared for Prime Minister Theresa May's showdown with her cabinet colleagues when she will try to sell her Brexit agreement.

Italy re-submitted its draft budget for next year to the European Commission with the same growth and deficit assumptions as a draft rejected last month for breaking European Union rules, but with falling debt, the new draft showed.

That rattled investors in volatile Italian government debt markets and pressured the euro.

The single currency fell to $1.1265, down 0.2 percent, after trading above $1.13 late Tuesday. The euro hit a 16-month low of $1.1216 earlier this week.

Thu Lan Nguyen, a strategist at Commerzbank, said she "did not anticipate an escalation in the crisis in Italy", but "much will depend on how the Europeans react. We are in a wait and see game."

Concerns that the row, along with slowing economic growth, would force the European Central Bank to postpone monetary tightening next year might also hurt the euro, she added.

Euro zone gross domestic product rose by 0.2 percent in the July-September period, official data showed, confirming its earlier preliminary flash estimate from Oct. 30.

The numbers were in line with expectations. Industrial production in September declined 0.3 percent month-on-month.

U.S. INFLATION

The dollar index ticked 0.1 percent up to 97.383. The index hit a 16-month high of 97.693 on Monday.

Traders are now preparing for U.S. inflation data, due at 1330 GMT. Economists polled by Reuters forecast consumer price inflation of 0.3 percent in October, up from 0.1 percent in September. Any strong reading could fire up dollar bulls expecting more Federal Reserve interest rate rises.

"With the outlook for core prices skewed to the upside as wages are set to rise, today's number will reinforce the Fed's approach towards gradual and ongoing tightening, keeping USD supported," ING analysts said in a note to clients.

Sterling skidded 0.4 percent to $1.2922 and fell 0.2 percent versus the euro to 87.18 pence.

News of the draft Brexit deal had supported the euro on Tuesday as agreement could reduce political uncertainty in one of the bloc's principal trading partners.

The Swedish crown lost as much as 0.7 percent versus the euro to 10.299 crowns after weaker-than-expected inflation.

The dollar was little changed versus the Japanese yen at 113.90. The yen touched a six-week low of 114.20 on Monday.

The Australian dollar weakened to $0.7199 against the U.S. dollar, down 0.2 percent.

The Canadian dollar was marginally lower at C$1.3240, trading near its four-month low brought on by a plunge in the price of crude oil, a major Canadian export.