Euro gains as Italian vote goes as expected by traders

The ECB headquarters in Frankfurt. [Xiyang Xing/Flickr]

The euro jumped against the US dollar on Monday (5 December) after Italian Prime Minister Matteo Renzi’s loss in a referendum over constitutional reform, a defeat that traders had widely expected.

Renzi was set to present his resignation on Monday after the decision. The size of the “No” vote, at 59.1%, was more emphatic than had been forecast.

Renzi’s resignation could open the door to an early election next year and the possibility of the anti-euro 5-Star Movement gaining power, though many investors and analysts see it as more likely that a caretaker government will be put in place until an election in 2018.

“The market had a lot of time to prepare for a no vote … there is nothing as yet imminently more negative than what the market had anticipated,” said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York.

Expectations that the European Central Bank (ECB) will hint at reducing its bond purchase program when it meets this Thursday is also seen as adding to strength to the single currency.

“The imminence of the ECB meeting is another factor that has led to the recovery of the euro today,” Jalinoos said.

The euro gained 0.96% to $1.0774, after earlier rising to $1.0796, the highest since Nov. 15. It briefly weakened to $1.0503, the weakest since March 2015, in the immediate aftermath of the Italian vote.

Renzi resignation opens new era of uncertainty for Europe

Italian Prime Minister Matteo Renzi said he will resign after losing a key referendum on constitutional reform, plunging the country into political turmoil and the EU in further uncertainty.

Renzi’s resignation delayed

Meanwhile, Italian President Sergio Mattarella told Renzi on Monday to put his planned resignation on hold until parliament had approved the 2017 budget, which could be done as early as Friday.

The president told him he should stay in place until the budget was passed to prevent emergency funding rules from kicking in on January 1. Once the budget was passed, he could hand in his resignation, according to a statement from the Presidency.

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