Italy was waiting Tuesday for caretaker prime minister and former International Monetary Fund economist Carlo Cottarelli to assemble a cabinet lineup for a technocrat government after a bid for power by an alliance of anti-establishment and far-right parties failed to get off the ground over the weekend.
Further, yesterday's comments by Italy's Five Star movement leader Luigi Di Mai, citing that he never sought a Euro exit, also aided the EUR/USD recovery.
The 10-year Italian government bond yield jumped to 3.19% bond prices fell, compared to just under 2% around two weeks ago.
Stocks across Europe took a hit, with Italy's benchmark stock index falling 2.7 percent, the German DAX falling 1.5 percent, with both Britain's FTSE 100 and the French CAC 40 falling 1.3 percent.
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The lower the yield on a bond, the safer it is perceived as being, so the increased yields paid by Italy represent a rising risk premium.
The Dow Jones Industrial Average fell 391.64 points, or 1.58 percent, to 24,361.45, the S&P 500 lost 31.47 points, or 1.16 percent, to 2,689.86 and the Nasdaq Composite dropped 37.26 points, or 0.5 percent, to 7,396.59.
A senior official in the US Treasury Department, speaking on the condition of anonymity, told reporters that Italy should work to resolve its current political crisis while staying within the eurozone.
Italy is the third-largest economy in Europe that uses the euro currency.