Fundamental Comment

Euro hits new bottom on concerns over Italy’s government


The euro dipped to a new bottom on Wednesday on some concerns over Italy’s new government and after the release of euro area inflation data.

A report overnight showed that Italy’s anti-establishment 5-Star Movement and far-right League plan to ask the European Central Bank to forgive 250 billion euros of Italian debt.

If happened, that would spark a conflict between the new government and the ECB.

But the Italian right-wing Lega party have denied such reports that the new government will seek a debt write-off.  

However, some analysts have warned that Italy is on the brink of forming the most unconventional inexperienced government since 1957.

“The spirit must be to return to the pre-Maastricht setting in which European states were moved by genuine intents of peace, brotherhood, co-operation and solidarity,” Five Star and the League said in a statement on Wednesday.

On the economic front, a report from the euro area released today confirmed a slowdown in inflation to 1.2 percent in the year ended April from a previous of 1.3 percent.

The EURUSD pair traded near a five-month low of 1.1795, resuming its plunge for a third straight session.

As of 12:00 GMT, ECB President Mario Draghi will deliver opening remarks at an ECB event held in honor of Vítor Constâncio in Frankfurt.

Italy’s 10-year bond yield climbed 4.33 percent to 2.022, the highest level since mid-March.

On the other hand, the dollar index snapped its earlier losses, rebounding from a low of 93.00 to a peak of 93.35.

The dollar rose despite the retreat in U.S. 10-year Treasury yield by 0.67 percent to 3.059 percent, ahead of U.S. housing starts and industrial production reports.

The green currency gained on Tuesday after a report hinting to improvement in consumer spending in April, while it has been on the rise since mid-April on re-assessment of monetary policy.

The chances of seeing four rate hikes by the Federal Reserve this year went above 50 percent for the first time, according to the CME's FedWatch tracking tool for the fed funds futures market.

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