2018.05.3101:25:00UTC+00Euro Enjoys Respite as Italy Political Turmoil Shows Signs of Easing

The euro won a reprieve on Thursday, holding on to the strong gains it made on Wednesday, as Italian leaders moved to mitigate political turbulence and avoid a potentially disruptive early election.

Italian Prime Minister-designate Carlo Cottarelli said on Wednesday that possibilities had emerged “for the birth of a political government,” suggesting politicians, rather than technocrats like himself, might be able to steer the country out of deadlock.

That has eased fears that new Italian elections could strengthen the hand of anti-establishment parties, helping to bring down Italian bond yields after they spiked sharply on Tuesday.

The euro was little changed at $1.1664, having risen 1.1 percent the previous day, its second-biggest daily gain so far this year. It had hit a 10-month low of $1.1510 on Tuesday.

An underlying theme that has pushed the euro lower since mid-April is a slowdown in Europe and the subsequent retreat in expectations for an early rate hike from the European Central Bank.

The common currency has lost 3.53 percent so far this month, the biggest fall since a 3.57 percent decline in December 2016.

The dollar index against a basket of six major currencies fell 0.1 percent to 94.055 after soaring to a near seven-month high of 95.025 on Tuesday.

The greenback stood at 108.780 yen, off a low of 108.115 brushed on Tuesday when risk aversion in the broader markets increased investor demand for yen, which is often sought in times of market unrest.