Euro Consolidates Around 1.16 over Positive Inflation Data

Italy news

GETTYItaly news Rome has descended into political chaos

"Italy failing to form a government, the markets were on edge and it happened to just crack and perhaps the reaction was a little bit out-sized", said Aaron Clark of GW&K Investment Management.

Enraged at losing their chance at governing following inconclusive elections in March, both the anti-establishment 5-Star Movement and the anti-euro League vowed with other parties to vote against a Cottarelli government when it faces a vote of confidence in parliament, expected later this week.

But Italy, where populist and extreme right parties are struggling to form a government, saw its rate rise to 11.2 percent with youth unemployment up to an alarming 33.1 percent.

Short-dated Italian bond yields - one of the most sensitive gauges of political risk - soared as much as 80 basis points to their highest since late 2013 as investors' anxiety deepened.

THE QUOTE: "The markets are looking much more constructive to end the week than they did to start, and with trade wars still lingering, that is saying a lot", Stephen Innes of Oanda said in a commentary.

Earlier Tuesday, Asian stock markets closed mostly lower, with traders keeping an eye on oil prices, which have tanked since Saudi Arabia and Russian Federation indicated they could raise output after abiding by a self-imposed cap for two years.

On Tuesday, the prospect of a snap election - likely to lead to a eurosceptic government that could put Italy's euro zone membership in question - hit Italian bonds, shares and pushed the euro to multi-month lows.

The chaotic developments in Italy have spooked investors, leading to the euro's losses today.

On the economic front while the euro zone's economy has been slowing down from strong growth previous year, consumer price data published on Thursday showed inflation jumped to 1.9 percent, well above forecast of 1.6 percent. Petrol prices jumped significantly in May, on the back of an oil price of around $80 per barrel for most of the month and a weakening euro.

The dollar index.DXY, which tracks the greenback against a basket of six currencies, fell 0.8 percent to a session low of 94.038, a day after hitting a 6-1/2-month high.

That could have major implications for the European financial system and its economy.

ASIAN SCORECARD: Japan's Nikkei 225 index fell 0.1 percent to 22,171.35 and the Shanghai Composite index tumbled 0.7 percent to 3,075.14.

ENERGY: U.S. crude oil climbed 43 cents to $67.16 per barrel in electronic trading on the New York Mercantile Exchange while Brent crude, used to price worldwide oils, added 71 cent to $76.20 a barrel in London.

Treasuries fell back with the dollar as the haven bid ebbed, and the euro jumped. Brent crude, used to price worldwide oils, shed 38 cents to $75.11 a barrel in London.

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