LONDON (Reuters) – The euro rose slightly in early trading on Thursday after Italy said it would cut its budgetary spending plans in a row with the European Union, although traders were in a cautious mood ahead of the European Central Bank’s monetary policy meeting.

Global markets were mostly positive at the start of the day on signs of easing Sino-U.S. trade tensions and expectations that China will increase support for its cooling economy.

That spilled into currencies, with the Australian dollar AUD= — a barometer of risk sentiment and China’s economic fortunes — gaining 0.3 percent.

Alvin Tan, a strategist at Societe Generale, said news that Italy was cutting its deficit target was supporting the euro, as it would help defuse a dispute with European officials in Brussels.

While the ECB is set to announce formally an end to its vast quantitative easing program at a policy meeting later on Thursday, the move will be tempered by the central bank likely expressing caution about the outlook for the economy.

Tan predicts euro/dollar will remain in a tight range until early 2019.

“Euro/dollar has been trapped in a range. There are very strong cross currents in macroeconomies. On the one hand U.S. growth is slowing. On the other, we have a situation where European political risk remain large and a cautious ECB,” he said, referring to risks around Brexit, Italy, and French protests.

The euro rose 0.2 percent to $1.1394 EUR=. The single currency has largely traded in a $1.16 and $1.12 range since August.

Investors are hoping to find out whether the ECB will start raising interest rates before ECB President Mario Draghi’s term ends in October next year.

“Everybody wants to have a hint regarding whether the ECB will raise interest rates next year but that will probably not happen,” said Yukio Ishizuki, senior currency analyst at Daiwa Securities.

The dollar .DXY has suffered in recent weeks after an eight-month rally, as investors curb their expectations for more Federal Reserve policy tightening in 2019 and on signs of a thaw in the U.S.-China trade conflict.

Against a basket of its rivals, the dollar index slipped 0.1 percent 96.945.

Elsewhere, sterling was the big story after Prime Minister Theresa May fought off a bid to unseat her by her colleagues unhappy with her Brexit plans.

After rallying ahead of the result, the pound was mostly unmoved by the result as the relatively narrow margin of her victory underlined the extent of opposition that remains to the Brexit withdrawal agreement she had struck with Brussels.

May heads to Brussels on Thursday for help in trying to sell a tweaked version of that deal to her colleagues. Sterling rose 0.4 percent to $1.2676 GBP=.

The yen shed 0.2 percent to 113.455 JPY= as positive mood in Asia weighed on a currency many investors buy when nervous.

The Swiss National Bank kept its ultra-loose monetary policy in place at a policy meeting, as expected, and the franc EURCHF= CHF= was largely unmoved.

Source: Read Full Article