Things look hazy for investors in Europe as Euro drops to a two-year low. The recent defeat for the Italian Prime Minister Matteo Renzi on a referendum over reforming the constitution saw him abdicate his position as the prime minister of the nation.
The situation has floated in a sense of political uncertainty in the eurozone. The European currency dropped nearly 1 percent to $1.0505, recording a two-year low. Euro was steadily rebounding over the past couple of months, however, the situation has put it back to a critical status. A halt below its 2015 march low $1.0457 could mean that the currency can witness its lowest evaluation since 2003. Though, traders suggest that heavy option-related buying at $1.05 may help limit the damage for the time being.
For the moment all eyes are on the political scenario in Italy after Renzi’s resignation. If the country fails to get a government in requisite time and forced to withhold the election it may well lead to a crisis in the market in Italy, which will have a ripple effect across the whole European region. If opinion polls are to believed, the 5-star Movement party and Renzi’s Democratic Party (PD) are almost tied to the race to election and investors are wary of a possible early election. The Italian president is expected to ask Renzi to rethink over his decision or go into a round consultation with party members to decide on a new prime minister. Moreover, the recent volatility in the Italy’s banking system puts the timing of the referendum even more undesirable. Monte dei Paschi di Siena one of the country largest banks has been performing poorly on its investment and money lending business and is supposed to raise nearly 5 billion euros by year-end in order to avoid severe bread down.
The referendum aftermath reflects the growing dissatisfaction amongst people towards the establishment, possibly grinding down investor confidence in euro ahead of elections in France, Germany and the Netherlands next year.
Summary: Euro tumbles as the Italian Prime Minister Renzi slumps on his reform referendum card