On Tuesday, the Single European Currency put the Italian concerns firmly behind it to reach a best level around USD1.2410; the first time it had been back a 1.24 big figure in two weeks. On Wednesday, the EUR extended its gains to a high just under 1.2440 at lunchtime in Europe before then slipping back to the high 1.23’s in the New York afternoon session.
In crafting its response to the US President, The Times reports that, “Cecilia Malmström, the European Union commissioner for trade, warned Mr Trump that tariffs on EU steel and aluminium would prompt retaliation. The EU has identified an array of US products for potential countermeasure tariffs, including orange juice from the politically influential swing state of Florida; bourbon from Kentucky, the home state of Mitch McConnell, the senior Republican in the Senate; and Harley Davidson motorcycles, which are headquartered in Wisconsin, the home of Paul Ryan, the Republican Speaker of the House.” Tariffs on EU steel would “put thousands of European jobs in jeopardy, and it has to be met by a firm and proportionate response,” said Ms Malmström.
Back to Italy, where for the currency and stock markets, the worst possible outcome still remains a coalition between the Five Star Movement and the Northern League. It is feared that a government formed by the two populist parties would lead to a surge in public spending, adding to Italy’s record public debt and violating deficit rules set down by the EU. The markets are also worried by the League’s threats to pull the country out of the euro. For the moment, these two parties are busy trading insults with each other so it seems an unlikely outturn. Keep an eye on it though, as any change in sentiment could quickly turn into a negative for the euro which opens in Asia this morning at USD1.2395, AUD/EUR0.6300 and NZD/EUR0.5870.