Euro slides below $1.18 on Italy debt concerns and dollar jump

Matteo Salvini

Matteo Salvini

League leader Matteo Salvini told reporters on the way to a meeting with Di Maio on Tuesday evening that there were still areas, including the approach to the European Union, where the parties diverged.

Fed up with the country's long, seemingly irreversible economic decline, persistent high unemployment and a refugee and migrant crisis, Italy's voters turned on the political centre that has governed (or failed to govern) Italy since the 1980s. Luigi Di Maio, leader of the Five Star Movement, said his party's call for a referendum on Italy's membership of the single currency was a "last resort" to force a relaxation of European Union fiscal rules. "The would-be coalition's denials that leaked draft policies were ever concrete plans also helped smooth markets", said Ken Odeluga, an analyst at City Index.

Euro zone inflation slowed in April, European statistics agency Eurostat said on Wednesday, confirming an earlier flash estimate and adding to the headache of European Central Bank policy makers seeking to phase out monetary stimulus.

For instance, the EU's Migration and Home Affairs Commissioner Dimitris Avramopoulos said he hopes Italy's policy on asylum seekers does not change under the new government.

Di Maio backed his potential coalition partner, saying the nascent government was "receiving constant attacks, even today by some eurocrats who weren't elected by anyone".

But that relaxed attitude could change if a populist government in Rome were to start a serious attempt to implement its vision for a return to the pre-Maastricht days. European Union officials also are nervously following developments of a proposed Italian referendum on the future of the euro currency and policies aimed at turning away refugees from Africa and the Middle East.

Italian stocks .FTMIB tumbled 2.3 percent while Italy's 10-year bond yield jumped almost 19 basis points to 2.13 percent.

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The dollar index rose 0.4 percent to 93.625, its highest since December 19. But both said they haven't gotten to that point yet.

The 5-Star Movement has a much greater appeal in the south, where the youth unemployment rate runs higher than 50 percent in many areas.

Ostwald said he suspected Asian central bank interventions to support their currencies against the dollar would also mean reducing their euro foreign exchange reserves, in order to keep their portfolios balanced.

This would be the first time the 5-Star Movement has had a government role higher than the municipal level. Di Maio has pledged to guarantee a minimum income to the unemployed.

Justice issues are important to Italy's scandal-plagued former premier, Silvio Berlusconi, whose Forza Italia party was part of a center-right campaign alliance with the League that captured 37 percent of the March 4 vote, making it Parliament's largest bloc.

Salvini and Di Maio have both agreed to drop their own ambitions to be prime minister and are looking for a candidate from outside their parties to enact their program.

But this week may go down as the moment when Mr Salvini and Mr Di Maio solidified their alliance on a platform - and tone - of conflict and defiance towards Brussels.

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