Yen exerts safe-haven pulling power amid Brexit Italian budget worries

The euro fell on Tuesday after the European Union rejected Italy's budget plan for next year, noting the Italian government must revise its proposal.

As of 10:28 a.m. in New York, the common currency traded at $1.1449, down 0.1 percent.

The dispute over Italy's spending plans and doubts about the leadership of Britain's prime minister who is mired in a stalemate over Brexit, means investors are focusing on the likelihood of further political turmoil in Europe.

Broad risk aversion pervaded currency markets on Tuesday, with the safe-haven Japanese yen and Swiss franc strengthening, while higher-yielding currencies like the Australian and New Zealand dollars fell.

Worries about Italy's spending has bred some doubt about the European Central Bank's plan to raise interest rates next summer and that has hurt the euro.

Italy's bond yields rose after the European Commission's meeting. "Unfortunately the clarifications were not convincing to change our earlier conclusions of particularly serious non-compliance," said European Commission Vice-President for the Euro and Social Dialogue Valdis Dombrovskis in a statement

The dollar index, a gauge of its value against six other major currencies, was flat at 96.01 after earlier reaching a two-month high of 96.158.

Turbulence in Europe has lifted the dollar recently along with expectations that a strong U.S. economy may see the Federal Reserve raise rates faster than assumed.

Britain's pound traded up 0.17 percent at $1.2983 after falling on Monday on fears that the Irish border issue and disagreements within Britain's ruling Conservatives over Brexit could see Prime Minister Theresa May face a serious leadership challenge.

"Whispers of a growing number of Tory MP rebels losing their patience with May have put the risks of a lengthy UK political impasse and a Brexit policy mistake (exiting the EU without a deal) back on the table," said Viraj Patel, a currency strategist at ING.

"We think this noise is likely to keep the pound on the back foot this week," he said.

The dollar weakened 0.7 percent against the Japanese yen to trade at 112.04 yen as risk-shy investors retreated from Asia's main share markets.

The Australian dollar lost 0.23 percent versus the U.S. dollar on Tuesday, changing hands at 0.7063. It lost 0.6 percent on Monday.

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