Euro hits near 2-year low, test­ing key lev­els

China Daily (Hong Kong) - - WORLD - By REUTERS in Tokyo

The euro tum­bled in early Asian trade on Monday af­ter Ital­ian Prime Min­is­ter Mat­teo Renzi said he would re­sign af­ter con­ced­ing de­feat in a ref­er­en­dum over his plan to re­form the Con­sti­tu­tion.

The euro dropped 1.3 per­cent to $1.0505, fall­ing be­low its 1 1/2-year low of $1.0518 touched late last month, and test­ing its key sup­port lev­els where the cur­rency has man­aged to re­bound in the past cou­ple of years.

A break be­low its 2015 March low of $1.0457 would send the cur­rency to its low­est level since early 2003, open­ing a way for a test of $1, or par­ity against the dol­lar, a sce­nario which many mar­ket play­ers now see as a real pos­si­bil­ity.

Renzi’s de­par­ture looks set to boost po­lit­i­cal un­cer­tainty in the euro­zone’s third largest econ­omy, as his Demo­cratic Party is running neck-and-neck with the antieuro 5-star Move­ment in the opin­ion polls.

It also came at a bad time for Italy’s frag­ile bank­ing sys­tem, as Monte dei Paschi di Siena, the coun­try’s third big­gest but ail­ing lender, needs to raise $5.4 bil­lion by year end to avert the risk of being wound up.

“The ‘No’ vote was priced in to a cer­tain ex­tent in ad­vance. So I do not ex­pect a freefall in the euro in the near

In the long run, this will de­lay progress in Italy’s ef­forts to get rid of banks’ bad debt.” Mi­nori Uchida, an­a­lyst at the Bank of Tokyo-Mit­subishi

term,” said Mi­nori Uchida, chief cur­rency an­a­lyst at the Bank of Tokyo-Mit­subishi.

“But in the long run, this will de­lay progress in Italy’s ef­forts to get rid of banks’ bad debt and is likely to widen the yield spread of Ger­man Bunts and the Ital­ian bonds,” he added.

The out­come could be taken as another sign of ris­ing anti-es­tab­lish­ment sen­ti­ment in the core of Europe, po­ten­tially erod­ing in­vestor con­fi­dence in the euro ahead of elec­tions in France and Ger­many next year.

One com­fort for in­vestors, how­ever, was that Aus­trian vot­ers roundly re­jected on Sun­day a can­di­date vy­ing to be­come the first freely elected far-right head of state in Europe since World War II, halt­ing at least tem­po­rar­ily the wave of pop­ulism sweep­ing Western coun­tries.

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