On Wednesday, as per the reports, euro rose to a ten-day high after hawkish comments from the European Central Bank (ECB), resulting in adding upward pressure to the bond yields and sinking some stocks as worries over Italy also weighed.
On Wednesday, the chief economist of ECB, Peter Praet said in a statement that the growth is making the central bank increasingly confident that inflation is on its way back to target, increasing the likelihood it may use a meeting next week to reveal more about the end of its bond-buying program.
The comments made by Praet supported the euro, that resulted in its rise from 0.3percent to 1.1747.
Bonds sold off, with the yield on Germany’s benchmark 10-year bond back above 0.4 percent, and was last up 4 basis points on the day.
Europe’s benchmark Stoxx 600 index was flat, with interest-rate-sensitive utilities stocks among the top fallers, down 0.5 percent
Italian stocks were a notable underperformer, falling 1.4 percent.
Investors said the new government’s big-spending fiscal plans, a major worry for markets over the last few weeks, were unlikely to be helped by the ECB tightening its own policy.
Italian borrowing costs also rose more than most in Europe, with the 10-year yield up 15 basis points to 2.91 percent
The chief economist at UBS Global Wealth Management, Paul Dobovan, said, “Profligate ECB bond buying in the face of profligate Italian fiscal policy is an interesting conflict. We believe the bond buying program will conclude by the end of this year.”
world equity index of MSCI, which tracks shares in 47 countries, was up 0.24 percent, mainly as a result of a strong showing from Asian stocks. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.63 percent.
The rise of euro has put pressure on the U.S. dollar index, that measures performance against six major currencies, with the main weighting given to the euro. The index fell by 0.27 percent.
On Wednesday, the Mexican peso became steady after falling to its weakest since February 2017 late on Tuesday after the United States raised the possibility of turning negotiations over the North American Free Trade Agreement into bilateral talks.
Trump economic adviser Larry Kudlow also revived the possibility that the president will seek to replace NAFTA with bilateral deals with Canada and Mexico.
The threat of rising trade protectionism has already taken a toll on global trade and could increase risks to growth, ANZ analysts Daniel Been and Giulia Lavinia Specchia said in a note.
While recommending a defensive stance on risk taking, they wrote that “Against this backdrop, we believe financial markets will become even more sensitive to bad news.”
Most other emerging currencies strengthened against the dollar, already lower versus the strong euro.
The emerging market currency index of MSCI ticked higher, rising 0.1 percent.