Euro Touches 20-Month Low After Italian Referendum

The common currency sank to a 20-month low on Monday after Italy’s Prime Minister conceded defeat.

Prime Minister Matteo Renzi said early Monday that he would resign after his program of constitutional reform was rejected by Italians in a referendum, as the ‘No’ campaign won nearly 60 percent of the vote.

The plebiscite’s defeat follows UK’s unexpected decision to leave the EU and Donald Trump’s election last month, which caught markets off-guard.

Euro wobbles after Italian referendum

The common currency slipped to $1.0505 in early morning Asia session, its lowest level since March last year, before regaining some ground to $1.0564.

Against the yen, which is considered a safe haven asset, the euro lost as much as 2.0 percent to ¥118.74, before recovering to ¥119.88.

The euro was also weaker against major rivals such as Swiss franc and U.K. pound.

Potential banking crisis

Analysts are particularly worried about the banking industry, which could be exposed to some lack of assurance in Italy.

Italian banks are facing a problem similar to the problem some American banks faced in 2008. They made a lot of loans (around $400 billion) to people who are not paying them back. The world’s oldest operating bank, Monte dei Paschi is the weakest link, as it needs 5 billion euros after failing a test of its financial health earlier this year.

“It is well known that a number of Italian banks have sizable bad loans on their books, Monte dei Paschi di Siena being the most well-known case. There are huge question marks over whether the government can prop up banks if they fail,” said Alex Furber, a sales trader at CMC Markets.

Shares in Monte dei Paschi fell nearly 3 percent, they have lost about 86 percent of their value this year, while Unicredit and Banco Popolare di Milano both dropped about 5 percent.
Unicredit said it was in exclusive negotiations to sell its asset management arm to Amundi of France.

 

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