European rivals of the U.S. dollar rebounded on Tuesday, bouncing back after a sharp sell-off on Monday inspired by worries about Italy’s budget proposal and tensions with the European Commission, as well as Brexit.
Having faced its weakest level since June 2017, the euro EURUSD, +0.3833% strengthened against the dollar on Tuesday, last buying $1.1249, compared with $1.1220 late Monday in New York.
Animosities between Italy’s government and the European Commission over the Italian 2019 budget proposal that would result in a ballooning deficit isn’t yet resolved, and traders are watching for headlines of the second proposal submission on Tuesday.
In the U.K., it’s crunchtime as well and investors are watching whether Tuesday’s meeting of Prime Minister Theresa May’s cabinet will yield anything new. Monday’s trading action had been marked by conflicting comments from London and Brussels that led market participants to fear a deal was further off than hoped.
Read: Currency traders betting on a Brexit deal are having a rough time
All in all, however, “any deal with the EU is most likely to be the easy part, with pushback likely to come from all sides of the House of Commons,” wrote CMC Markets’ chief markets analyst Michael Hewson.
Sterling GBPUSD, +0.7781% bounced back from its sharp sell-off Monday and last bought $1.2921, up from $1.2851 late Monday.
On the trade front, reports that Treasury Secretary Steven Mnuchin is resuming trade talks with his Chinese counterpart ahead of President Donald Trump and President Xi Jinping meeting at the G-20 summit in Buenos Aires later this month, didn’t significantly sway the dollar on Tuesday.
The popular ICE U.S. Dollar Index DXY, -0.34% which is heavily weighted toward the greenback’s European counterparts, was down 0.1% at 97.440.
China’s yuan was slightly stronger on Tuesday, helped by the buck’s weakness across the board, with greenback buying 6.9682 yuan USDCNY, -0.0905% down 0.1%, in Beijing, and 6.9538 USDCNH, -0.1393% also down 0.1%, in the offshore market.
Late Friday, San Francisco Federal Reserve President Mary Daly shed some doubt on the Fed’s expected policy normalization schedule, saying the U.S. wasn’t at full employment. This could be seen as a signal that next month’s expected quarter-of-a-percentage point rate increase isn’t set in stone:
“Given that she is a voting member this year, this is not an insignificant intervention, and may speak to wider uneasy amongst Fed officials that previously hadn’t been apparent,” Hewson said.
Fed Gov. Lael Brainard, also a voting member, is speaking at 10 a.m. Tuesday and Daly speaks again later Tuesday.
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