LONDON (AFX) - The euro was weaker in early trade on disappointment at the lack of a decisive majority in the Italian election and on ongoing concerns about the European Central Bank's shock interest rate cut last week, dealers said.
Dealers said the fact that Italy's centre-right did not win by as much as expected at the weekend had triggered fears of political stability which were weighing on the single currency. They said controversy surrounding Italian prime minister-elect Silvio Berlusconi's massive media interests was a further negative for the euro.
"While the Italian election result is not a big deal in itself for the euro, it's just another straw that the poor old camel's got to carry round with him," 4cast currency strategist Paul Bednarczyk said. WestLB economists said that given Berlusconi's "more sceptical view on Europe plus concerns about his tax-cutting plans, the election outcome may serve as another reason to sell the euro which had its lowest weekly opening so far this year".
Dealers said the market was still perplexed by the ECB's rate cut last Thursday, which followed signals that it would not move until inflation fell to nearer its ceiling of 2.0 pct.
"The ECB's credibility is in doubt, and that's not helping the euro," Bednarczyk said.
In the UK, the euro was dragging sterling lower ahead of the release of what is expected to be a modest increase in producer prices for April.
Otherwise, dealers said market participants were waiting for tomorrow's meeting of the U.S. Federal Open Market Committee.
They said that following Friday's robust U.S. consumer figures, expectations of a further 50 basis point cut were no longer set in concrete. The dollar could come under pressure if the cut was a smaller 25 basis points, they said.