Euro firms against dollar before European Central Bank meeting

Reuters had reported exclusively on Tuesday that Italy was preparing to take a 2-billion-euro controlling stake in the bank as prospects of a private funding rescue faded following Prime Minister Matteo Renzi’s decision to resign after voters rejected his proposals for constitutional reform.

A slump in Italian banking stocks, hit by worries that efforts to clean up bad debts would get derailed by the onset of political uncertainty, was offset by gains in European healthcare and mining stocks helping the regional benchmark to rise more than 1 percent on Monday. Indeed it retraced higher to nearly $1.08 on Monday.

ECB President Mario Draghi has already indicated that the bank’s future stance will be clarified on Thursday, when it will have compiled new inflation and growth forecasts.

Oil fell, with US crude down more than 1 percent at $51.26 per barrel as investors judged a 16 percent rally since the OPEC agreement last Wednesday to curb production was getting stale. The outlook for 2018 was also lowered to 1.6 percent. On Wednesday it edged up 0.1 percent to $1.0724. They had reached 2.492 percent on December 1, their highest level since July 2015, according to Reuters data.

Osborne said any further euro strength is likely temporary as investors focus on higher US growth prospects. The dollar index, which measures the USA currency against a basket of six of its major peers, was down 0.2 percent. Bank of Japan Deputy Governor Kikuo Iwata said on Wednesday that the central bank had not shifted its focus away from the pace of money printing and stressed it remained committed to using both rate cuts and asset purchases as key tools to revive the economy. “The major focus is that the biggest economy in the world, the US, is going to pick up steam on the back of Trump-economics”, he said, adding that the European Central Bank will likely continue asst purchases as is “to keep the market calm and avoid a taper tantrum”.

-The Australian dollar fell 0.2 percent to 74.61 USA cents after the nation’s central bank kept interest rates unchanged and Governor Philip Lowe said “some slowing in the year-ended growth rate is likely”.

The dollar was steady at 113.990 yen after inching up about 0.2 percent overnight following a modest rise in US bond yields.

The Dow Jones industrial average (.DJI) rose 297.84 points, or 1.55 percent, to 19,549.62, the S&P 500 (.SPX) gained 29.12 points, or 1.32 percent, to 2,241.35 and the Nasdaq Composite (.IXIC) added 60.76 points, or 1.14 percent, to 5,393.76. Yields on the 30-year Treasury fell by nearly 6 basis points in the biggest daily decline since later August. The hearing is to last for four days, and although it will not conclude until January, parliament’s involvement is seen as favouring a softer Brexit, which would continue to support the pound in the short term.

While the market remains concerned about the risk of an early election being called in Italy, the focus at the minute was on the European Central Bank meeting, said Shinichiro Kadota, senior FX strategist for Barclays in Tokyo.

Brent futures fell 93 cents, or 1.7 percent, to settle at $53.00 a barrel, while USA crude lost $1.16, or 2.3 percent, to settle at $49.77.

-Italy’s 10-year bond yields declined by one basis point, or 0.01 percentage point, to 1.98 percent, after Monday’s increase of eight basis points.

Tuesday’s Q3 Eurozone GDP results, which were expected to meet preliminary figures of 1.6% year-on-year, came in with a better-than-expected result of 1.7%.

The neutral outlook for the policy rate was maintained.