October 22, 2018 / 1:20 AM / 7 months ago

FOREX-Euro, sterling shaky as markets eye Italy budget, Brexit developments

* Euro, sterling tentative after bouncing from Friday’s lows

* Canadian dollar trades close to a 5-week low

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Vatsal Srivastava

SINGAPORE, Oct 22 (Reuters) - The euro and the British pound edged down against the dollar on Monday as investors awaited developments around Brexit as well as Italy’s budget plan which drew heavy criticism from the European Union.

The greenback hardly budged in early Asian trade, with a broad index gauging its value against major peers trading flat at 95.73, having hit a of high of 96.09 on Friday.

Both the euro and sterling managed to hold firm, though traders said the currencies remained sensitive to news around Brexit and a controversial Italian budget proposal.

“The movement of the euro and British pound may become increasingly sensitive to geopolitical factors such as Italy’s budget issue and Brexit talk gaining more headline exposure,” said Jonathen Chan, market analyst at CMC Markets in a note.

The European Commission on Thursday sent Rome a letter calling a draft budget an “unprecedented” breach of EU fiscal rules. Italy now has until Monday to explain to the Commission its breach of rules and faces the rejection of its budget, which may eventually lead to sanctions.

The euro lost 0.1 percent versus the greenback, changing hands at $1.15, having gained 0.5 percent versus the dollar on Friday.

Sterling had also rallied on Friday after Bloomberg News reported that British Prime Minister Theresa May is ready to drop a key Brexit demand in order to make a deal for Britain to leave the European Union (EU).

UK Brexit minister Dominic Raab said on Sunday that Britain is open-minded about extending the post-Brexit transition period if it means the European Union drops its proposals for the so-called Irish backstop.

Sterling was fetching $1.3055, down 0.1 percent against the dollar having hit an intra-day low of 1.3009 on Friday.

The euro and British pound rallied against the U.S. dollar on Friday.

The Japanese yen was up 0.1 percent at 112.45, getting an early safety bid as stocks in Asia edged lower on concerns over global growth and corporate earnings.

The outlook for global growth in 2019 has dimmed for the first time, according to Reuters polls of economists who cautioned that the U.S.-China trade war and tightening financial conditions would trigger the next downturn.

The Canadian dollar was changed hands at 1.3107 on its U.S. counterpart, within striking distance of a 5-week low of 1.3132 hit on Friday on the back of weaker inflation and retail sales.

Yet, market participants expect the Bank of Canada (BoC) to raise interest rates on Oct. 24. The central bank has raised rates four times since July 2017 and has said it wants to contain inflation pressures. (Reporting by Vatsal Srivastava)

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