Euro plunges to low after Renzi resigns

Referendum raises concerns over Italy’s future in EU

THE EURO fell to the weakest level since March 2015 as Italian Prime Minister Matteo Renzi resigned after conceding defeat in the nation’s constitutional referendum.

The single currency dropped against all its 16 major counterparts as the referendum on Renzi’s plans to rein in the power of the Senate was defeated by 60 percent to 40 percent, with almost all the vote counted. The euro pared losses following the premier’s speech, while the yen erased an earlier advance against the dollar.

“Markets tend to react much faster to changes of environment now,” said Yannick Naud, head of fixed income at Banque Audi (Suisse) in Geneva. “There is now a possibility of the euro reaching parity to the dollar. Maybe not right away, but it is a possibility if there is certainty new elections.”

The euro dropped 1.1 percent to $1.0548 (R14.5385) as of 1.36pm in Tokyo after falling as much as 1.5 percent to $1.0506, the lowest since March 16, 2015.

The result is the latest in a series of votes that have roiled financial markets in 2016, following Britain’s vote to leave the EU in June and Donald Trump’s victory in last month’s US presidential election. Still, with a “no” vote largely expected, the initial currency-market reaction is relatively muted – the pound fell by more than 10 percent as it became clear the UK had voted for Brexit, while the dollar swung wildly in the hours following Trump’s win.

While the referendum has raised concerns over Italy’s future in the euro region, the nation’s political and legal system mean a “no” vote is unlikely to trigger a quick exit.

“If the referendum is rejected, this is not the end of the world,” Fabio Fois, a London-based economist at Barclays, said before the vote. “Bicameralism will remain, but what really matters is the government attitude to press ahead with reforms. – Bloomberg