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The euro was forced to give back its earlier gains, thanks to political uncertainty in Italy and Spain. However, all that uncertainty was apparently a boon for the safe-haven yen.

  • Spring bank holiday in the U.K. today
  • Italian PPI m/m: -0.4% vs. 0.2% previous
  • Italian PPI y/y: 1.3% vs. 1.8% previous
  • Mattarella appointed Cottarelli as the interim Italian PM
  • Spanish PM Rajoy will face confidence vote on Friday

Major Events/Reports:

Italy-related updates

Earlier today, Italian President Sergio Mattarella met with Carlo Cottarelli, a former IMF official.

And rumors naturally began to grow that Mattarella will appoint Cottarelli as the new PM after Giuseppe Conte resigned in the wake of Mattarella’s refusal to endorse Paolo Savona as the economy minister.

And as it later turned out, Mattarella did appoint Cottarelli as the interim PM.

The 5-Star Movement and the League quite obviously threatened to not vote in favor of Cottarelli.

Interestingly enough, Forza Italia also said that it won’t support a government under Cottarelli.

And that opens the way for a possible election down the road.

And according to Corriere della Sera newspaper, fresh elections will likely be set for the second Sunday of September (Sept. 9).

Spain-related update

There were already proposals that Spanish PM Mariano Rajoy should face a vote of confidence last Friday, thanks to corruption convictions against people in Rajoy’s People’s Party.

And today, those proposals apparently became reality since the Spanish Parliament decided to hold a vote of confidence this Friday.

Risk aversion dominates in Europe

The major European equity indices had a very promising start, thanks to optimism over the news that the coalition government in Italy failed to pan out.

However, selling pressure eventually returned, sending most of the major European equity indices into negative territory by the end of the session.

And according to market analysts, the returning risk-off vibes were due to renewed political uncertainty in Italy because of the prospect of fresh elections.

  • The pan-European FTSEurofirst 300 was down by 0.25% to 1,526.07
  • Germany’s DAX was down by 0.30% to 12,899.94
  • The blue-chip Euro Stoxx 50 was down by 0.66% to 3,491.25

Major Market Mover(s):

EUR

The euro’s relief rally ended and became a broad-based euro retreat during the morning London session, very likely because market players had a reality check and realized that Mattarella’s actions will likely lead to fresh elections in Italy, which means more political uncertainty.

And Italy is not the only one that may be headed for fresh elections since Spanish PM Rajoy will be facing a confidence vote come Friday, which may lead to snap elections in Spain.

EUR/USD was down by 66 pips (-0.57%) to 1.1641, EUR/GBP was down by 39 pips (-0.45%) to 0.8743, EUR/JPY was down by 85 pips (-0.67%) to 127.29

JPY

The safe-haven yen apparently had a good time at the euro’s expense since all that political uncertainty in Europe likely ramped up safe-haven demand for the yen.

USD/JPY was down by 11 pips (-0.10%) to 109.34, AUD/JPY was down by 26 pips (-0.32%) to 82.62, CHF/JPY was down by 33 pips (-0.31%) to 110.01

Watch Out For:

  • The U.S. will be observing the Memorial Day holiday
  • No economic reports on the docket