Euro-Area Finance Chiefs Brace for Fresh Fight Over Budget

(Bloomberg) — Euro-area finance ministers will debate the final key elements of a small budget for their currency bloc, as the region seeks to cap two years of difficult negotiations over a tool that falls far short of the original sweeping vision of French President Emmanuel Macron.

The discussion on the budget, whose broad outlines were already agreed in June, will seek to bring to a conclusion difficult talks that pitted the fiscal restraint of the EU’s hawkish North against the South’s calls for spending to stimulate the economy. But entrenched differences over aspects of how this pot of money will be financed may mean an accord remains elusive.

The agreed budget would create a pot of about 20 billion euros ($ 22 billion) to facilitate investments and reforms and help give a boost to poorer nations, rather than help support economies in a downturn, as was initially intended. These funds, which would be part of the EU’s broader budget and distributed over seven years, will be used to help countries see through investments and reforms and help poorer nations catch up.

Proponents argue that the pared-down budget could still be a foot in the door that could evolve into something more powerful in times of crisis. Skeptics of the plan say it’s a toothless tool that could nonetheless help incentivize laggards to reform.

Stumbling Blocks

A key issue ministers will debate is whether the instrument can be financed entirely from the EU’s broader budget, paid in by all the bloc’s 28 governments, or whether it could be topped up by other funding sources in the future.

Countries led by France have been pushing for a deal that would allow funds to be added through further contributions. The Dutch and other fiscal hawks have pushed for it to be funded exclusively from the EU’s budget, a restriction that would limit its total size.

A compromise could include a so-called “enabling clause”, which would pave the way for countries that wish to top up the budget to do so in the future. But the Dutch have insisted that this would only be on a voluntary basis, a red flag for other members.

The other main issue to be discussed involves the details of the so-called co-financing rate, which determines how much money governments will receive from this budget for a project and how much they have to put up themselves. This contribution could vary depending on the member’s economic situation, being reduced during a downturn.

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Citi says prospects for a Brexit deal look weak so brace for delay

LONDON (Reuters) – U.S. investment bank Citi said the Brexit proposals of British Prime Minister Boris Johnson appeared to fall foul of European Union red lines so an extension and election were likely.

“The UK’s proposals seem to fall foul of established EU red lines,” Citi said. “We think the prospects for a deal continue to look weak.

“If a deal is not forthcoming, we expect an extension to be secured and a general election to follow subsequently,” Citi said. “Putting forward new plans at such a late stage, and on a ‘take it or leave it’ basis, sets up a clear blame-game in the event of an extension and a general election.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Pound Falls as Investors Brace for Brexit Fight in Parliament

(Bloomberg) — Follow @Brexit, sign up to our Brexit Bulletin, and tell us your Brexit story. 

The pound fell to the lowest level in two weeks as a showdown between U.K. lawmakers over Brexit loomed large.

Sterling was the worst performer among its Group-of-10 peers after Prime Minister Boris Johnson threatened to kick out Conservative lawmakers who vote to block a no-deal Brexit as Parliament prepares to return from holiday on Tuesday. The U.K. manufacturing sector shrank in August at the fastest pace since 2012, which also hurt sentiment.

“This move is a reaction to the news from the whips office that Conservative MPs could be expelled,” said Jane Foley, head of currency strategy at Rabobank. “That means even though the opposition will try and rush through this legislation to stop no deal it’s really not clear who will win.”

Bonds completed a fourth month of gains in August as investors braced for Johnson to suspend Parliament ahead of the Brexit deadline on Oct. 31, limiting the time available to prevent a chaotic exit from the European Union. Opposition lawmakers will present legislation Tuesday that would force the U.K. to delay Brexit again if an agreement hasn’t been reached.

The fell 0.6% to $ 1.2084 as of 10:56 a.m. in London, and weakened 0.3% to 90.71 pence per . The yield on U.K. bonds fell four basis points to 0.44%.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Forex News

Euro stuck near two-month low as markets brace for dovish ECB

By Stanley White

TOKYO (Reuters) – The euro was mired near a two-month low on Thursday ahead of a European Central Bank meeting that could signal monetary easing as growth in the currency zone falters.

Sentiment toward the single currency took a blow after data showed Germany’s manufacturing sector contracted at the fastest pace in seven years while French business growth unexpectedly slowed, sending European bond yields lower.

In Asia, emerging currencies edged lower after North Korea fired two short-range missiles into the sea early on Thursday, diminishing appetite for riskier assets in the region.

However, investor focus in Asia remains predominantly on global central bank and political developments, particularly in Europe and the United States.

Sterling held onto gains it made since Boris Johnson took office as Britain’s new prime minister on Wednesday, but investors are still wary of a no-deal Brexit in which Britain would leave the European Union without a trade agreement.

The dollar found support after U.S. Treasury Secretary Steven Mnuchin said he would not advocate for a weaker currency.

Investor focus shifts to the ECB’s meeting later on Thursday and a widely expected interest rate cut from the U.S. Federal Reserve next week, which are both expected to dictate the tempo for currencies and bond yields in coming months.

“I see more downside for the euro, because there are no good signs coming from Europe at the moment,” said Tsutomu Soma, general manager of fixed income business solutions at SBI Securities in Tokyo.

“Don’t expect European bond yields to rise anytime soon. The U.S. is headed toward lower rates, which used to be a supportive factor for the euro, but that is no longer the case.”

The common currency () traded at $ 1.11415 after touching $ 1.11270, its lowest since May 31.

The euro has fallen 2.0% so far this month on increased speculation the ECB would join other central banks in easing policy as a trade war between the United States and China weakens the global economy.

Traders see a 48% probability that European policymakers will lower a key deposit rate by 10 basis points to minus 0.50%, according to interest rate swaps.

If the ECB keeps policy on hold Thursday, economists say President Mario Draghi could flag a rate cut for the next policy meeting in September.

The Ifo institute will release its closely-watched index of German business sentiment later on Thursday, which will provide further clues about the health of Europe’s largest economy.

Sterling was a shade higher at $ 1.2484, staging a modest recovery from a 27-month low of $ 1.2382 reached last week.

Johnson promised in his first speech as prime minister to lead Britain out of the EU on Oct. 31 with “no ifs or buts” and warned there would be a no-deal Brexit if the bloc refused to negotiate.

The dollar traded at 108.200 yen , near a one-week high of 108.290 yen.

Mnuchin told CNBC in an interview the United States benefits from the greenback’s standing as the world’s reserve currency.

The dollar was also supported by a White House statement that top U.S. negotiators will meet their Chinese counterparts in Shanghai starting July 30.

The world’s two-biggest economies are seeking a resolution to their bruising trade war.

The (), which measures the greenback against six major currencies, stood at 97.701 after touching an eight-week high of 97.810 on Wednesday.

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Forex News

Lira Slumps as Traders Brace for U.S. Response to S-400 Delivery

© Reuters.  Lira Slumps as Traders Brace for U.S. Response to S-400 Delivery © Reuters. Lira Slumps as Traders Brace for U.S. Response to S-400 Delivery

(Bloomberg) — The Turkish lira extended its decline as investors braced for the fallout from the nation’s purchase of a Russian missile-defense system, a transaction U.S officials have long threatened to respond to with sanctions.

The lira fell more than 1.8% to the lowest level since Monday after senior U.S. Defense Department officials said they will address the issue at 11:15 a.m. in Washington. Turkey started receiving the first major cargo of the S-400 batteries earlier on Friday.

Though the delivery had been well flagged, traders are on edge as they await clarity on the response from Washington, which is concerned the arsenal will undermine NATO’s military capabilities. President U.S. Donald Trump’s suggestion last month that he may spare Turkey the worst of sanctions fueled optimism the penalties would be mild.

“Sanctions are unavoidable. It is merely a question of how punitive they are and when they are implemented.” said Julian Rimmer, a trader at Investec Bank Plc in London.

The lira was trading 1.6% lower at 5.7684 against the dollar as of 4:17 p.m. in Istanbul.

(Updates with comments from U.S. officials, prices throughout)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Dollar weakens as investors brace for expected Fed caution

© Reuters. Employee counts U.S. dollar banknotes at a foreign exchange house in Monterrey © Reuters. Employee counts U.S. dollar banknotes at a foreign exchange house in Monterrey

By Tom Finn

LONDON (Reuters) – The dollar fell on Wednesday as investors bet that the Federal Reserve would signal plans to slow its pace of interest rate raises at a keenly-watched meeting later in the day.

Fed policy makers are widely tipped to raise rates for a fourth time this year but also to express caution about future monetary tightening due to concern about slowing global growth.

Expectations of a pause from the Fed amid a U.S.-China trade conflict and global financial market volatility has led some investors to question if the dollar’s stellar run will continue into 2019.

U.S. President Donald Trump has repeatedly berated the Fed and on Tuesday said in a Tweet it was "incredible" for the central bank to even consider tightening given global economic uncertainties.

"A hike is still likely, regardless of Trump’s displeasure, but there’s a very good chance that they will reduce the number of hikes in 2019 to two (from three)," said Kit Juckes, global head of FX strategy at Societe Generale (PA:).

The safe-haven yen and the Swiss franc both strengthened as an overnight plunge in oil prices provided a stark reminder of the dimming prospects for the global economy.

Risk sentiment has been soured by weaker-than-expected economic data out of China and the eurozone.

The yen and the Swiss franc each added a little more than 0.1 percent on the dollar, changing hands at 112.33 and 0.9916 respectively, building on three consecutive days of gains.=EBS>=ebs>

The () was down 0.3 percent at 96.77, hovering near a one-week low as it extended losses into the second day.

Elsewhere, the euro () hit a one-week high of $ 1.1405, gaining 0.3 percent. The single currency has enjoyed a rare uptick in the past three sessions as the dollar grappled with lower yields and monetary policy risks.

The same reasons gave the Australian and New Zealand dollars a lift, with both of them gaining 0.2 percent to $ 0.7195 and $ 0.6864 respectively.=D3>=D3>

The euro was also supported by news that Italy had struck a deal with the European Commission over its contested 2019 budget, signaling an end to weeks of wrangling that had shaken financial markets.

Comments by Fed Chairman Jerome Powell in late November that the key interest rate was “just below” neutral, a level that neither brakes nor boosts the economy, have bolstered investor expectations that U.S. central bank is nearing a pause on its monetary tightening.

However, some analysts still see the Fed raising rates 2-3 times in 2019.

"Personally, I think the Fed will continue to normalize policy next year and I don’t think it will send the U.S. economy into recession," said ACLS analyst Marshall Gittler.

"An economy where there are more job offers than unemployed persons doesn’t need such super-stimulus. That’s why I remain bullish on the dollar," he added.

According to the CME Group’s FedWatch tool, the probability of a December rate hike is 69 percent, down from around 75 percent last week, a significant move in such a short period.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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