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The Italian referendum pushes the euro down

The Italian Prime Minister, Mattero Renzi, said he will resign after defeat in a constitutional referendum. The euro fell to the lowest level since March 2015.

Italy’s bonds climbed the most in three weeks. Euro’s rate has pared losses following the prime minister’s speech.

The result of the referendum is a new episode in a series of votes that have shocked the financial markets this year, following the Britain’s decision to leave the European Union and the election of Donald Trump as the president of the USA. The pound fell more than 10 percent after the Brexit vote. This time the markets remained relatively calm, because the negative outcome of the referendum was expected.

What has surprised the markets the most are the numbers itself. Even though the defeat was expected, the scale surprised. Over 59 percent of Italians voted “no”, according to the final data. In effect, the euro has opened today with a big gap, but managed to rebound a bit afterwards.

“The moves were contained because everybody expected a ‘no’ today. I am not optimistic on this one. I don’t see this as a very positive sign for the euro, because now one of the biggest countries in the euro zone is in a political mess.” – said Jens Peter Sorensen, chief analyst at Danske Bank.

What brings concerns among the investors is that Italy’s banking sector is strongly linked with the bond market. Italian bonds still remain under strong pressure.

“Bond market turbulence could have serious implications for the financial system. Foreign investors may be less willing to underwrite capital raisings of Italian lenders” – said Maria Paola Toschi from JP Morgan Asset Management.

While the voting raised serious concerns over Italy’s future in the euro region, it is highly unlikely, that it will trigger a quick exit.

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