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Euro drops due to Italian Referendum result

• Posted by Shyam Gokani in Uncategorised
• December 5, 2016
• No Comments

The euro rebounded from 21-month lows today, clawing back almost all the ground it had lost overnight after Italian Prime Minister Matteo Renzi conceded defeat in a referendum on plans to reform the country’s constitution and said he would resign.

The single currency tumbled as much as 1.4 percent in Asian trade, its weakest since March 2015, as investors worried about increased political uncertainty in the euro zone. However by 0855 GMT it had recovered almost all those losses.

The result had been widely expected, though the size of the “No” vote, at with 59.1 percent, was more emphatic than had been forecast.

European Central Bank sources told Reuters last week that the bank was ready to step up purchases of Italian government bonds temporarily if the referendum result were to spur a sell-off, but traders said on Monday that they had seen no evidence of the ECB in the market so far.

The ECB holds its next policy meeting on Thursday.

Results of a monthly survey of service sector purchasing managers this morning showed a slight improvement from the forecast coming in at 55.2 from an expected 54.5, this had no impact on the pound value, while political attention will focus on the government’s appeal against the court decision requiring parliamentary approval for launching Brexit talks with Brussels.

The appeal process starts today and will conclude on Thursday. If the appeal is won by the government we should see Sterling weakness.