The euro fell against the dollar on Tuesday as political uncertainty in Italy roiled markets.
The euro had shed more than 0.5% to trade at 1.156 versus the dollar at 8:30 a.m. ET. It had spiked to 1.1728 on Monday, as President Sergio Mattarella blocked the nomination of euroskeptic Paolo Savona as finance minister.
The move raises the prospect that another round of elections could take place in August, drawing out months of political turmoil that have left the country’s leadership in gridlock.
Mattarella nominated former International Monetary Fund official Carlo Cottarelli as interim prime minister after the antiestablishment Five Star Movement and the far-right Northern League, populist parties that came out on top in an inconclusive March election, failed attempts to form a new government.
“The risk here is that a re-election will lead to a stronger populist group forming, and thus, a possible referendum on the European Union,” said Hussein Sayed, chief market strategist at FXTM. “This will eventually lead to further rating downgrades from credit rating agencies.”
The euro is down 3.79% versus the dollar this year.
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