Italy budget concession hopes switch risk sentiment back on, boost euro

LONDON - 3 October 2018: The euro bounced off six-week lows on Wednesday, European shares rose and Italian bonds rallied as some of the worries that have rippled across markets this week were soothed by signs Rome was amenable to cutting budget deficits and debt in coming years.

A report in the Corriere della Serra newspaper — later confirmed to Reuters by a government source — said the deficit would fall to 2.2 percent of gross domestic product in 2020 and to 2 percent in 2021 from the 2.4 percent earlier outlined.

That brought relief to markets which had fretted that Italy’s decision to expand budget deficits well beyond what was agreed by a previous government would deepen its debt problems while stoking conflict with the European Union, whose officials have already expressed concerns.

The euro, which had hit a six-week trough of $1.1506 after suffering five straight days of losses, firmed 0.3 percent while Italian borrowing costs eased off 4-1/2-year highs, after jumping 50 basis points since budget details emerged last Thursday.