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Reports of a fresh row in Italy’s new government weakened the euro at the start of trading yesterday. There is speculation that the Italian government will attempt to increase next year’s budget deficit which could cause some problems with the European Commission. The government’s two Deputy Prime Ministers – Luigi Di Maio and Matteo Salvini – are at odds with Giovanni Tria, the Economy Minister. Tria is reluctant to put a budget together that will increase Italy’s budget deficit, but Di Maio and Salvini are determined to find a means to pay for campaign promises. Tria could be out of a job shortly unless the issue is resolved.

There was more bad news, with economic sentiment in the eurozone falling for the ninth month in a row. The figure slipped to 110.9 from 111.6, which was weaker than the 111.2 expected by economists and the lowest level in 15 months. The figures are being seen by some as evidence that economic growth in the eurozone is gradually slowing. After a very impressive 2017, this is not altogether unexpected.

The euro didn’t have a brilliant day and weakened against sterling and the dollar as the news filtered through to the markets. However, the row in Italy dominated the day’s proceedings as far as the single currency was concerned. There were plenty more releases from the eurozone, but it was a pretty mixed bag. Industrial sentiment fell to 4.7 in September against an expectation of 51, while consumer confidence came in as expected at -2.9. Gfk consumer confidence in Germany beat expectations by hitting 10.6 from 10.5 the previous month, and business confidence was 1.21 which beat the 1.19 forecast. Inflation in Germany jumped to 2.3% when it has been expected to hold steady at 2%.

There are two main releases from the eurozone today in the form of the unemployment rate across Germany in September and the eurozone’s inflation rate. It is expected that inflation will rise to 2.1% from 2% the previous month, which is in line with what European Central Bank president Mario Draghi said on Monday. If the figure does increase then it could well reinforce expectations of a rate hike before Draghi leaves his position.

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