The euro is bouncing back but analysts say it won't last

(Photo by Leon Neal/Getty Images,)

LONDON – The euro is bouncing back on Wednesday after a rapid decline sparked by Italy’s political crisis.

The euro is up 0.4% against the dollar to $US1.1593 at 10.40 a.m. BST (5.15 a.m. ET). The recovery is similar in percentage terms to the drop seen on Tuesday.

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Despite a bullish start to the day, analysts think the euro will be unlikely to hold on to gains. Markets are jittery after Carlo Cottarelli’s failed attempt to form a government in Italy and the announcement of Trump’s intention to hit China with a $US50 billion dollar in tariffs.

“This morning the euro is attempting to stage a correction trending towards 1.16 but with the market sentiment heavily against it, any gains will not likely be sustained,” said Konstantinos Anthis, head of research at ADS Securities.

Global markets have been hit by a crisis in the eurozone, sparked by the inability of Italy to elect a stable government and the prospect that an anti-EU leader could end up in power.

Neil Wilson, chief market analyst at, said that the eurozone could afford to lose Greece but couldn’t survive Italy leaving the currency union.

“The fluid situation on the ground means stock and bond markets look set to remain volatile. Investors may well prefer to sit on the sidelines until this one settles down,” Wilson said in his morning market commentary.

Ignazio Visco, chairman of the Bank of Italy, warned on Tuesday that the country was at risk of losing the “asset of trust.”

European and US stocks closed lower on Tuesday and Asia traded in the red overnight. Investors have been pulling their money out of the euro and stocks, and are instead picking up assets considered “safe havens,” such as the yen, gold, and US Treasuries.

The overall trend in recent weeks has been for a dramatic strengthening of the US dollar, which had already contributed to a weaker euro.

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