Dollar extends rally, euro weak; political risk jolts Italian markets

Remigio Civitarese
Mag 17, 2018

The text confirms that both parties want an "immediate withdrawal" of European Union sanctions against Russian Federation, to which both parties have grown close.

Italy's election in March left Matteo Salvini's nationalist League, and the anti-establishment Five Star Movement (M5S) under Luigi Di Maio, in the driving seat to form a coalition. "The would-be coalition's denials that leaked draft policies were ever concrete plans also helped smooth markets", said Ken Odeluga, an analyst at City Index.

"This is our message to the new government".

The head of state has made it clear that he will only look at the definitive version of the text, after a draft leaked earlier this week caused consternation with proposals that would allow Italy to leave the euro, demand financial concessions from the European Union and withdraw sanctions on Russian Federation.

After months of drift and political uncertainty, Italy looks set to anoint its first government dominated by populist and anti-immigrant parties, setting Rome on a collision course with the European Union powers that be in Brussels over plans to cut taxes, increase spending, reconsider the euro currency and dramatically curb the flow of refugees arriving on the country's shores from northern Africa.

"There will be utmost dialogue with Europe, but we will not be subordinate to Eurocrats", he said.

But that relaxed attitude could change if a populist government in Rome were to start a serious attempt to implement its vision for a return to the pre-Maastricht days.

Losses in Asian share markets, however, were limited after US equities advanced on Wednesday, led by retail and technology shares, even as a rise in USA 10-year Treasury yields to an nearly seven-year high suggested more competition for equities.

The dollar index .DXY , which measures the greenback against a basket of six other currencies, rose 0.13 percent to 93.340 after rising to 93.632 during the session, its highest since mid December.

"They are preparing excuses if they can not maintain all their promises, so they want to unleash a battle against the European Union", said Andrea Romano, a lawmaker from the centre-left Democratic party. The rate on 10-year bonds traded above the 2 percent threshold Tuesday for the first time in more than a year. Each party plans to consult its supporters over the weekend to see if they back the nascent government pact.

"European (budget) constraints need to be reviewed, together with our partners, but they need to be reviewed", Di Maio said on Facebook. However, three 5-Star sources said the main stumbling point remained who should head the administration.

Justice issues are important to Italy's scandal-plagued former premier, Silvio Berlusconi, whose Forza Italia party was part of a center-right campaign alliance with the League that captured 37 percent of the March 4 vote, making it Parliament's largest bloc. Both leaders are young: Mr. Di Maio is 31, and Mr. Salvini is 45.

He also said the only alternative to a deal was another election. Di Maio has said that he and Salvini are "ready to remain outside" the leadership if necessary, adding that Italy's next prime minister would be "a political nominee who will be selected by both forces".

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