After a devastating defeat on Sunday’s referendum on constitutional reform, Italian Prime Minister Matteo Renzi promised to resign after only two and a half years in office, posing a devastating blow to the euro-zone’s third largest economy.
The euro fell to twenty-month lows against the dollar on Monday, with markets worried that Italy’s troubles could send ripples of financial trouble throughout Europe and beyond. Renzi’s resignation will open the door to early elections and the distinct possibility that the 5-Star Movement, a staunch anti-euro party, could rise to power. Renzi’s departure is likely to exacerbate fears about the Italian banking sector and to raise downgrade risks from ratings agencies, though these decisions won’t likely trickle down in the immediate term.
Currency Fluctuations Abound
The euro plummeted as much a 1.4 percent to $1.0505, testing key support levels where the currency has succeeded in rebounding in recent years. A break below $1.0457, hit in March 2015, would send the euro to its lowest point since 2003, and could open the path towards parity against the dollar. The euro also eased against the yen and the pound, trading a 118.70 yen and 0.8315 pound, its lowest level since July. The dollar fell to 112.87 yen on Monday, before rebounding to 113.77, slightly lower than the 9 ½ month highs it hit last week.
In New Zealand, Prime Minister John Key unexpectedly announced his resignation, sending the country’s currency almost one percent lower to $0.7075.