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Forex Flash: Euro deriving support from reduction of Italian deadlock - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the euro is deriving support from the reduction in political uncertainty in Italy following the announcement over the weekend that an agreement has been reached to end the political deadlock following the inconclusive election results from the 24th and 25th of February.

He sees that politicians from the centre-left, centre-right and centrist parties have agreed to form a grand coalition government headed by Enrico Letta. Mr Letta is expected to set out the new government’s programme of institutional and economic reforms to parliament today ahead of confidence votes in both chambers which it should win. The cabinet also includes technocrats in key posts which will boost its credibility with investors such as the director-general of the Bank of Italy Fabrizio Saccomanni who was named as the new finance minister.

Hardman continues to note that the new government is likely to be viewed favourably in the near-term by the market although its stability may prove only relatively temporary given the broad range of political views amongst the grand coalition. He writes, “The ongoing narrowing of euro-zone sovereign credit risk premium appears to be having a diminishing positive impact upon the euro as government bond yields continue to normalize in fiscally challenged members. Building expectations of further monetary easing from the ECB are also weighing upon the euro with the ECB expected to cuts its refi rate by 0.25 point at this week’s meeting with President Draghi also likely leaving the door open for further easing ahead.”

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