Euro Rallies Amid Political Worries over Several European Countries

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The European currency surged back after weakening against the dollar earlier amid political worries over Greece, Italy and Britain as European geopolitical fears weakened risk appetite.

EUR/USD was up 0.20% to $1.1186 by 10:29 ET, after falling as low as 1.1108.

The single currency came under pressure in early trade as worries over Greece’s bailout, the prospect of an early Italian general election and European Central Bank President Mario Draghi’s comments about the need for continued stimulus all weighed.

James Woods, a global investment analyst in Sydney, attributed most of the currency’s decline on Tuesday, saying Athens may opt out of its next bailout payment if creditors cannot get a debt relief deal done.

“The bailout payments are necessary to meet existing debt repayments due in July, so if Greece were to forgo this bailout payment the probability of a default would spike, reopening the discussion around a Grexit from the Euro zone,” Woods said.

However, he warned against reading “too much into it” without more details or confirmation, adding it was doubtful Greece would forgo the bailout payment at this stage.

Euro zone finance ministers failed to agree with the International Monetary Fund on Greek debt relief or to release new loans to Athens last week, but did come close enough to intend to do both at their June meeting.

Comments by former Italian Prime Minister Matteo Renzi on Sunday in favor of holding an election at the same time as Germany’s in September also raised uncertainty and pulled the euro lower earlier.

So did a statement by European Central Bank President Mario Draghi reiterating the need for “substantial” stimulus given subdued inflation.

Meanwhile, sterling pushed higher, rising 0.3% to $1.2877, despite British Prime Minister Theresa May’s lead over the opposition Labor Party dropped to as low as 5-6 percentage points in the latest poll to show a tightening race since the Manchester bombing and a U-turn over social care plans,  which adds to political risk around Brexit as well.

Recent polls have indicated that Prime Minister Theresa May’s Conservative Party has less of a lead over the Labor Party than expected.

The pound was also higher against the euro, with EUR/GBP down 0.09% at 0.8703.

Moreover, the greenback index was at 97.23, off the day’s highs of 97.67 as the firmer euro weighed up.

Last week the index plumbed lows of 96.79, its weakest level since November 9 amid uncertainties over the Trump administration.

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Stocks Rise in Asia as Oil Extends Gains

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Stocks in Asia rose higher, climbing to a fresh-two year high on Tuesday, while oil extended gains after major producers, Saudi Arabia and Russia agreed to an extension of supply cuts until 2018.

Stock benchmark indexes in Australia and Japan climbed, offsetting losses in China shares, after the S&P 500 Index closed above 2,400 for the first time. Crude rose for a fifth day, topping $49 a barrel as Saudi Arabia and Russia extending output cuts will probably influence other countries to follow. Shenzhen shares increased while those in Shanghai erased an earlier decline after the closing of a global summit in Beijing. The yen fortified with the Mexican peso and South Korean won.

The surge in oil is keeping the global stocks bullish even as concern rises over the strength of the global economy. Chinese industrial production and retail data came in weaker than expected Monday, after American retail sales and inflation also cast a shadow on growth. Financial markets have also gotten a boost from China’s sweeping plan to improve global infrastructure.

“At the moment we are taking inspiration from the higher oil price and what it means for energy prices across the world; what it means for (capital expenditure); and what it means for reflation — and of course the market loves reflation,” said Chris Weston, a chief market strategist in Australia.

Main Moves in Financial Markets

The MSCI Asia Pacific Index increased 0.2 percent as of 10:54am in Tokyo, heading for the highest closing level in 2 years. Japan’s Topix rose 0.3 per cent, while the Nikkei 225 Stock Average climbed to within two points of reaching 20,000 before pulling back. Australia’s S&P/ASX 200 climbed 0.2.

China shares traded in Hong Kong retreated 0.6 percent after surging 1.6 percent on Monday following optimism over Beijing’s infrastructure spending program. The Shanghai Composite Index slumped 0.7 per cent and the Hang Seng Index lost 0.3 percent.

Oil added 0.6 per cent to US$49.12 a barrel, after surging 2.1 per cent on Monday while Gold gained 0.3 percent to US$1,234.61 an ounce, rising for a fourth straight sessions.

The yen rose 0.2 percent to 113.52 per US dollar, after dropping 0.4 percent on Monday. The South Korean won increased 0.4 percent to the highest since April 4, while the Mexican peso added 0.3 percent.

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