EUR/USD is trading around 1.1300, significantly up from the 17-month lows of 1.1215 recorded on Tuesday.
The Good: Brexit breakthrough, US-Chinese talks
The European Union and Britain have finally agreed on a withdrawal agreement or a Brexit deal. Intense negotiations resulted in a compromise on the question of the Irish border.
The agreement maintains an open border between Northern Ireland and the Republic of Ireland while keeping the rest of the UK in a customs union of sorts. There is a review mechanism included according to reports. While the full details are yet to come, politicians have already expressed their opinions, and it seems that Prime Minister Theresa May will have a hard time pushing the agreement. The UK Cabinet convenes today to approve the deal and to secure an EU Summit later this month. The more significant hurdle will be mustering support in Parliament.
The Pound’s volatility has significantly increased, and the Euro feels some of the secondary effects.
The world’s most popular currency pair enjoyed the improving atmosphere in talks between China and the US. Top White House Economic Adviser Larry Kudlow expressed optimism and said that discussions are open on all levels. Presidents Donald Trump and Xi Jinping are on course to meet in Buenos Aires at the end of the month. The upbeat mood diminishes demand for the safe-haven US Dollar.
The Bad: Italian crisis continues, German contraction
Back to the old continent, things are not that rosy. The Italian government decided to maintain its budget untouched, with the same budget deficit and growth forecasts that the European Commission rejected. This defiance is likely to result in a disciplinary procedure against the euro zone’s third-largest economy. Spreads between Italian bonds and the safe-haven German bunds will be eyed.
