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Italy’s populist coalition had been a source of concern since the March election, according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Their first budget was expected to test EU budget responsibility amidst fears of a fiscal blowout due to the opposing stances of the rightwing League and spending-friendly 5 Star. Though still a risk, their budget appears to be falling well inside EU’s 3% deficit to GDP guidance and so a potential negative for EUR is turning into a supportive factor.”

“Last week Draghi downplayed downside risks for a balanced and neutral outlook while maintaining their forward guidance. In addition to flash and Germany’s IFO survey, the ECB will be closely watching for any upside pressures within coming inflation data to offset external downside risks and persisting moderation in hard activity data.”

“EUR/USD rebounds on the back of Italy’s reduced budget risk and consolidation in USD are likely to be short-term and capped within the current 1.12-1.19 range.”