Sunday, 26 May, 2019

Euro slides below $1.18 on Italy debt concerns and dollar jump

Matteo Salvini speaks to the media during the second day of consultations with Italian President Sergio Mattarella at the Quirinal Palace in Rome Euro slides below $1.18 on Italy debt concerns and dollar jump
Deanna Wagner | 17 May, 2018, 04:11

On Wednesday morning Salvini said that negotiations were nearing conclusion, while Di Maio confirmed the two parties could wrap up the "contract of government" within the day.

In Italy, investors seized on a report that the anti-establishment 5-Star Movement and the far-right League party plan to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt, according to a draft the parties are working on.

The two parties have spent the last six days drawing up a so-called "contract" meant to be the basis for a coalition government between the two groups following an inconclusive March 4 election.

Late Tuesday, a draft coalition program leaked.

Both parties are keen to make good on their election promises and before the polls, M5S and the League both blamed the EU's overbearing rules for Italy's chronically weak growth, rising poverty, and voter resentment. Italy's 10-year bond yield climbed almost 19 basis points to 2.13 percent and that was its highest level since early March and the biggest one-day rise since March 2017.

They have both vowed to scrap an unpopular pension reform - a move that would punch a 15-billion-euro (RM70 million) hole in state coffers.

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Italy already has an enormous debt worth more than 130 percent of annual output, second only to Greece in the EU.

It could lead to a spate of Eurosceptic, populist parties making promises to clear European Union debt.

"The combination of higher oil prices, higher dollar and stronger yields are starting to potentially weigh on investor sentiment", said Katie Nixon, chief investment officer for wealth management division of Northern Trust in Chicago. "The next few days will be crucial", Luigi Di Maio told reporters after meeting with Mr. Mattarella.

Another commissioner, Dimitris Avramopoulos, was also quoted on Tuesday as weighing in on Italian politics, saying he hoped the new government maintained current immigration policies. But some of the details will alarm the European Union.

LONDON, May 16 (Reuters) - The euro slumped to a five-month low on Wednesday after reports that a likely future Italian government would seek debt forgiveness from European creditors and as the dollar resumed its powerful, month-long rally.

Both M5S and League have a deep history of Euroscepticism and while 5-Star has moderated its position considerably in the a year ago, rowing back on a previous plan to hold a referendum on Italy's membership of the currency bloc, the League still wants to leave the Eurozone as soon as is politically feasible. However, the League still wants to leave the eurozone as soon as politically feasible. However, three 5-Star sources said the main stumbling point remained who should head the administration.