The euro came under pressure in early Asian trading Monday as first exit polls and then results indicated a strong majority rejecting the proposed changes to the Italian constitution.
The referendum was widely seen as a vote on the Italian government and Prime Minister Matteo Renzi quickly followed through on his promise by saying he would offer his resignation to the Italian president Sergio Mattarella. Early indications have the ‘No’ camp winning in the region of 60% of the vote.
EUR/USD fell steadily rather than spectacularly in early Asian trading, having opened at 1.0670. It ground lower to touch 1.0508 as Renzi announced his resignation, but then bounced to 1.0550.
Yesterday’s referendum decision in Italy to reject changes to the Italian constitution, and the subsequent offer to resign on the part of Italian Prime Minister, Matteo Renzi, could spell trouble for the future of the euro, warn economic strategists.
Profit & Loss reported yesterday that the euro was under pressure following the referendum decision, but on Monday it recovered. Despite this, Jason Leinwand, co-founder and CEO of FirstLine FX, thinks that the currency is overvalued given the potential political threats in Europe.
The European Central Bank (ECB) has decided to hold interest rates steady, with market participants predicting further euro weakness.
At today’s meeting, the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40%, respectively.
The Governing Council says that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.