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  • The Five Star Movement and the centre-left Democratic Party reached a deal.
  • EUR/USD not showing much sign of a reaction as the deal was expected.  

The anti-establishment Five Star Movement (M5S) and the centre-left Democratic Party (PD) have been trying to create a new workable coalition, despite having been bitter enemies until just a few weeks ago, and finally, we have news that a deal was  reached for a new government, with Conte as prime minister.  

FX implications

There has been no reaction in the market to this as a  deal was expected today.  The Movement’s leader Luigi Di Maio already said that  should a deal be reached it would still have to be voted on by M5S members in an online poll that would take place before the end of next week. However, the risk now is whether  M5S support the proposed government – “Only if the vote is positive will the M5S support the proposed government project,” Luigi Di Maio  said.

Italy remains under pressure to approve a budget in the coming months and should it fail  to do so, markets will be risk-off considering the implications for  an automatic rise in value-added tax that would hit the poorest families the hardest and could plunge the debt-laden country into recession – denting the value in the euro, especially against the Yen.