Global equities closed higher yesterday as the Italian political parties reengaged in talks hoping to avoid snap elections and form a government. The EUR also retraced on the back of the headlines, while the USD Bloomberg Spot Index fell throughout yesterday’s session.
In Italy, local media (Il Corriere della Sera, Ansa) reported renewed efforts of M5S and Lega to form a coalition government; M5S called their economist Savona to withdraw his candidacy for the Finance Ministry, thus increasing the chances that Lega’s Salvini accepts the new government.
The formation of such a coalition would be a short-term positive, thus headlines will be closely watched as a driver of EURUSD.
UK headlines were overshadowed by Italian politics once again and GBP price action was relatively muted. In data, UK consumer confidence rose marginally to -7, indicating that households were a little more upbeat in May.
Elsewhere, the Bank of Canada kept its policy rate unchanged as expected, but dropped its cautious rhetoric. In Indonesia, Bank Indonesia increased policy rates for the second time in two weeks, and signaled a clear intent to manage currency volatility and preserve financial stability.
CAD rallied on back of the BoC’s more hawkish rhetoric, bringing it more in line with market expectations for future rate hikes (July rate hike is currently priced in ~90%).