Euro Touches 20-Month Low as Renzi Concedes Referendum Defeat - Bloomberg

December 5, 2016
  • Italian premier says he will offer resignation on Monday
  • Shared currency pares losses after speech, yen erases gains
  • The euro fell to the lowest level since March 2015 as Italian Prime Minister Matteo Renzi said he will resign after conceding defeat in the nation's constitutional referendum.

    The single currency slid against all of its 16 major peers as exit polls showed about 59 percent of Italians had voted against Renzi's plans to rein in the power of the Italian Senate. Still, 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, the head of fixed income at Banque Audi (Suisse) SA 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 regarding new elections."

    The euro slid 1 percent to $1.0560 as of 1:42 a.m. Rome time. It earlier fell 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 European Union in June and Donald Trump's victory in last month's U.S. presidential election. Still, with a "no" vote largely expected, the initial currency-market reaction is relatively muted compared to those events - the pound fell by more than 10 percent as it became clear that the U.K. had voted for Brexit, while the dollar fluctuated 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 Plc, said before the vote. "Bicameralism will remain, but what really matters is the government attitude to press ahead with reforms."

    Why Italian Vote Unlikely to Mean Swift Euro Exit: QuickTake Q&A

  • A rejection of Renzi's reform means Italy's government bonds, which have been the euro zone's worst performers in the past six months, may drop Monday. The bond market opens at 8 a.m. Rome time.
  • The yield premium demanded by investors for owning the nation's 10-year bonds instead of benchmark German bunds surged on Nov. 28 to the most since June 2015. It pared that increase last week, while Italian stocks gained.
  • Before the vote, some investors said they saw the currency, rather than the nation's bonds, as the best way to play the referendum, as the European Central Bank's bond buying plan provides a source of support for the fixed-income securities.
  • The nation's benchmark FTSE MIB Index of shares, which starts trading at 9 a.m. in Rome, has dropped about 20 percent this year, and may extend its decline on Monday.
  • While Renzi's concession initially roiled other currencies, the fallout was limited. The yen erased a gained of as much as 0.6 percent against the dollar, while the Australian dollar and Mexican peso pared losses.
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    Steven Rich
    Sep 17, 2018:
    Well done
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