NEW YORK (Reuters) – The euro slid against the dollar on Tuesday after Italy’s deputy prime minister said the country is ready to break European Union budget rules if necessary to spur employment.

“If we need to break some limits, like the 3% (deficit-to-GDP ratio) or 130-140% (debt-to-GDP ratio), we’re ready to go ahead. Until we arrive at 5% unemployment, we will spend everything that we should and if someone in Brussels complains, that won’t be our concern,” Matteo Salvini said.

“There are renewed Italian concerns,” said Win Thin, global head of currency strategy at Brown Brothers Harriman in New York. “It looks like things are coming back to a head.”

The dollar was also buoyed as U.S. and Chinese officials said the two countries would continue to negotiate on trade.

U.S. President Donald Trump on Tuesday defended his trade war with China as tensions escalated and markets extended their losses, promising a deal with Chinese President Xi Jinping soon, even as fears escalated about a protracted battle.

Continuing uncertainty over whether an agreement is likely should support safe-haven currencies, including the dollar and the Japanese yen, said Thin.

“There is too much uncertainty,” Thin said. “I think things will get worse before they get better.”

Investors are also focused on whether Trump will impose tariffs on imported cars and auto parts as talks continue with the EU and Japan.

Trump received a “Section 232” investigation report in February, widely believed to have concluded that car and auto part imports pose a risk to national security. The president’s 90-day deliberation period is due to end on Saturday.

Sterling dipped to two-week lows as British employment data showed wage growth in the quarter ending March was lower than expected, signaling the possible start of a turbulent period for the broader economy.

The British currency is also being weighed down by concerns about Britain’s exit from the European Union.

Britain’s opposition Labour Party said on Tuesday that Prime Minister Theresa May had not yet made a shift in Brexit talks and that the party was concerned a future Conservative leader could renege on any promises made by the current government.

Source: Read Full Article