(23 MAY 2018)DAILY MARKET BRIEF 1:USD buoyed as risk sentiment deteriorates
The greenback rose across the board on Wednesday morning amid general increase in nervousness to Italy’s future government. The dollar index surged to 93.975, up 0.35% on the day, as the euro dipped to 1.1711 (-0.57%), the pound sterling slid to 1.3385 (-0.35%), while the loonie gave up 0.50% with USD/CAD increasing to 1.2882. On the other hand, safe haven currencies were better bid this morning as both the Japanese yen and the Swiss franc extended gains. USD/CHF slid as low as 0.9895, while USD/JPY returned towards 110.
Market participants are still waiting for Italian President Sergio Mattarella to approve Giuseppe Conte as prime minister. The Italian President still hasn’t taken his decision suggests that he is not entirely convinced Conte would fit the job. It may sound as a good thing for investors as one may assume that if Mattarella refuses to appoint Conte, the 5-Star Movement and the League would have to propose someone with an actual political base and a stronger political background. Indeed, Conte is mostly unknown, has no political experience and is therefore unpredictable – and as you know markets like predictability.
We remain cautious regarding a potential pull back of the market against such a backdrop. Indeed, the 5-Star and the League won’t give up their program should Conte be turned aside. This period of uncertainty could last more than a few, especially if they want to get their hands dirty as soon as possible, starting with their campaign promises: slashing taxes, boost spending, roll back pension control immigration and ask for a debt write-off.
By Arnaud Masset
