Fundamental Comment

Euro, pound rise on Italy’s coalition stall, hawkish remarks

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The euro and pound rebounded against the U.S. dollar on Tuesday after a stall in the formation of a coalition government in Italy and hawkish remarks from Bank of England member.

The euro extended its rise for a second straight session to $1.1812, resuming its rebound from a five-month trough $1.1716 hit on Monday.

The shared currency benefited from news showing a halt to the process of establishing a coalition government in Italy gathering populist parties 5Star and League, as President Sergio Mattarella sought more consultations regarding their nominated prime minister.

Italy’s 10-year bond yield slipped 1.33 percent to 2.304 percent after hitting the highest level in more than a year yesterday.

Some investors were uncertain a coalition government would be able to continue with their big spending plans, in addition critical issues with the EU including the national budget deficit rules, immigration and lifting sanctions on Russia.

On Wednesday, eyes will focus on euro area flash manufacturing and services PMI figures for May, after the ease in the pace of expansion in the first quarter.

Moreover, the British pound soared to a high of $1.3491, while currently trading at $1.3457 after hawkish remarks from BOE member Gertjan Vlieghe.

Vlieghe predicted that interest rates could rise up to six times in the next three years, while played down the impact of the Brexit vote on UK growth.

BOE Governor Mark Carney also blamed "temporary, idiosyncratic factors" for UK growth slowdown.

An upbeat economic report showing UK public sector net borrowing retreated to 6.2 billion pounds in April, marking the lowest level in a decade, has helped the pound to maintain its gains.

The pound’s movements will probably be affected by any updates from the Brexit negotiations that resume in Brussels Tuesday.

Later in the day, South Korea’s president visits Trump in Washington to discuss North Korea’s dilemma.

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