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EUR/USD Rally Pressures Dollar as Italian Political Uncertainty Eases

5/31/2018, 11:50:41 AMBasics of Trading
EUR/USD Rally Pressures Dollar as Italian Political Uncertainty Eases

The U.S. dollar retreated sharply from six-month highs against its rivals following a rebound in the euro as Italy’s designate Prime Minister Carlo Cottarelli was reportedly mulling “new possibilities” to form a government, easing weeks of panic selling in the single currency.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.82% to 94.04.

EUR/USD found its footing on Wednesday, rising 1.02%, as hopes emerged for the formation of an elected coalition government in Italy.

"During his [Cottarelli] work as premier designate for the formation of a new government, new possibilities emerged for the creation of a political government," sources told Italian news agency ANSA.

This follows a failed attempt by populist parties Five Star Movement and League to form a government after their pick for Prime Minister, Giuseppe Conte, abandoned his mandate to form a government on May 27.

Conte abandon his mandate after Italian President Sergio Mattarella had rejected Conte’s pick for finance minister Paolo Savona.

While it remains to be seen whether a comprise on a new candidate for the role of Finance Minister can be sought, investors appeared to welcome the positive news.

Also adding to dollar pressure was a duo of economic reports that fell short of expectations.

U.S. gross domestic product increased at a 2.2% annual rate in the January-March period, the Commerce Department said in its second estimate on Wednesday, missing economists’ forecast of 2.3%.

On the labor market front, private payrolls grew by 178,000 for the month, according to a report released Wednesday by ADP and Moody's Analytics. That missed economists’ forecast of 186,000.

USD/CAD fell 1.21% to C$1.2860 after the Bank of Canada left interest rates unchanged but tweaked the language in its accompanying policy statement, hinting at the prospect of a July interest rate hike.

GBP/USD rose 0.28% to $1.3289, while USD/JPY rose 0.16% to 108.64