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Italian Viva Party Leader Matteo Renzi announced that he would be pulling his cabinet ministers from the government, essentially completing his withdrawal from the ruling coalition, reported Reuters citing a press conference. Renzi has had strong disagreements with Italian Prime Minister Guiseppe Conte over how the country’s allocation of European Recovery funds would be spent. 

According to UniCredit, these are the next steps; “(Italian PM Conte) might decide to verify whether his government (after a cabinet reshuffle) has the support of a parliamentary majority in a confidence vote in parliament, or immediately resign. In the event of Mr. Conte’s resignation, the
next steps would be for President Mattarella to open a round of consultations with all political parties in order to verify the existence of majority in support of a new government. Such a new government would most likely be supported by a majority similar to the current ruling coalition, with the Five Star Movement and the Democratic party as the main parties. While these steps will increase political uncertainty, the probability of an early election remains low, in our view.”

Market Impact

With the risk of another snap election now a little higher, which opens the door to the potential return to power of the anti-EU League Party, headed by Matteo Salvini, EUR/USD briefly slipped below 1.2150 and to fresh lows of the day. The pair is now above this level, however, and the losses appear to have been fleeting.