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Forex Flash: Italian political uncertainty is weighing on the Euro and risk assets - BTMU

Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that political uncertainty has increased in Italy following the election results weighing upon the euro and risk assets.

He sees that the elections results revealed that the centre-left coalition led by Bersani won a majority in the Lower House. However, it was unable to secure a majority in the Senate (winning only an estimated 120 seats) even by forming a coalition with the centrist parties led by Monti (who won only an estimated 16 seats).

He comments that this is in contrast to the centre right parties led by Berlusconi who won an estimated 115 seats in the Senate. However, the real winner in the elections was the anti establishment Five Stars party who won 25.55% of the national vote and 58 seats in the Senate. He writes, “The hung Senate has increased the probability of fresh elections soon as neither the centre-right or Five Stars parties may be keen on forming a grand coalition government with public support potentially moving further in their favour should another election be held.”

Hardman feels that the election results send a strong signal for change from the electorate who have voted against the traditional political establishment, and the fiscal austerity programme endorsed by Europe. He finishes by writing, “A period of prolonged political uncertainty in Italy poses downside risks for the euro in the near-term although unstable politics in Italy is not exactly a new phenomenon which with time the market may become more comfortable with as the ECB is still standing behind the debt market.”

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