Euro rallies as Italy relief lifts risk appetite

The euro strengthened against major currencies on Monday, with risk appetite lifted after the European Union and Britain agreed on a Brexit deal and signs that Italy is willing to reach a compromise over its 2019 budget plans.

Sterling was firmer at around $1.2833 <GBP=>, as focus turned away from Sunday's pact with EU leaders to a vote on the deal in the British parliament next month.

Europe's single currency gained 0.3 percent to $1.1376 <EUR=EBS> and was up 0.7 percent at 128.90 yen <EURJPY=EBS> as European stock markets opened firmer <.STOXX> and with U.S. stock futures <ESc1> up more than a percent.

Broader optimism over the euro was reflected in the latest weekly positioning data, where long dollar positions have declined slightly. Net weekly positions in the euro rose by their biggest weekly margin in more than two months.

Italy's governing coalition is discussing reducing next year's budget deficit target to as low as 2 percent of gross domestic product to avoid a disciplinary procedure from Brussels, a government source said on Monday. and

"Abating political risk in Europe could help all European currencies today," said Valentin Marinov, head of FX research at Credit Agricole in London.

"Recent media reports that the populist government in Italy may be willing to compromise on the budget is one of the potentially positive developments.