October 3, 2018 / 3:43 AM / 21 days ago

FOREX-Euro crawls up from 6-wk lows on Italy budget speculation

* Italy to cut budget deficit in coming years -Corriere della sera

* Euro bounces on report, nudging USD index away from 1-mth high

* US non-manufacturing ISM index release eyed for near-term cues

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Updates throughout)

By Shinichi Saoshiro

TOKYO, Oct 3 (Reuters) - The euro pulled ahead from a six-week low on Wednesday after a report that Italy plans to reduce its budget deficit in the coming years provided some relief to the battered currency.

The euro was up 0.35 percent at $1.1585 following its descent to $1.1505 overnight, its lowest since Aug. 21.

The single currency got some support after Italian newspaper Corriere della sera reported that Rome aims to gradually reduce its budget deficit to 2 percent of gross domestic product (GDP) in 2021.

The Italian government, in a tripling of its predecessor’s target, had last week set out a deficit goal of 2.4 percent of GDP for the next three years, unnerving markets and prompting criticism from European Commission officials.

“The euro was lifted, as the latest report on Italy’s budget appears to have prompted a bit of short covering following its recent descent on budget woes,” said Koji Fukaya, president at FPG Securities in Tokyo.

“The market was relieved amid signs that perhaps Italy was willing to play by the rules. The Italian budget could recede as a market theme going forward, but that won’t mean the euro can regain its stride, with the dollar enjoying such an yield advantage,” Fukaya added.

The dollar index against a basket of six major currencies was 0.25 percent lower at 95.288 after scaling 95.744 overnight, its highest since Sept. 4.

The yen, another safe-haven currency, also dipped against peers such as the euro, dollar and Australian dollar.

The greenback was up 0.15 percent at 113.79 yen, recovering from the day’s low of 113.59 plumbed earlier.

“U.S. data due later today such as the non-manufacturing ISM index and Friday’s jobs report will provide a chance to see if the economy is performing in line with the Fed’s views,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

Ishikawa said the dollar has benefited from recent euro weakness but that fundamental factors fortified after the Fed’s rate hike has played a larger role in the greenback’s advance.

The dollar index has advanced about 1.4 percent since last Wednesday, when the Federal Reserve raised interest rates as expected and said it foresees another rate hike in December, three more next year and one in 2020.

The pound was 0.1 percent lower at $1.2995 after dropping on Tuesday to $1.2941, its weakest since Sept. 10, as conflicts over Prime Minister Theresa May’s Brexit plan escalated.

The Australian dollar was down 0.1 percent at $0.7180 and within touching distance of a two-week trough of $0.7162 brushed on Tuesday. (Reporting by Shinichi Saoshiro Editing by Eric Meijer & Shri Navaratnam)

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