The euro makes back losses from pound and dollar as markets react to Italian Prime Minister Matteo Renzi's resignation

 
Jasper Jolly
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Matteo Renzi Government To Face Confidence Vote At The Italian Chamber Of Deputies
The Prime Minister had staked his personal position on the vote (Source: Getty)

The euro regained its steep losses against the pound and the dollar as the week started with the defeat of Italian Prime Minister Matteo Renzi in his flagship constitutional reform and his immediate resignation.

The pound rose above €1.20 in the early hours of Monday morning before falling back to €1.1899 at the time of publication.

Follow the live fallout from the Italian referendum result here

Meanwhile the euro fell to lows of $1.0506 against the dollar – its lowest point this year – in the immediate aftermath of the result, before recovering convincingly to trade at $1.0692.

The “No” campaign against the reforms won convincingly, by 60 per cent to 40 per cent, with a high turnout as a broad coalition in opposition motivated the electorate to defeat the Prime Minister.

Renzi’s defeat was widely expected after the last polls two weeks ago – before a legal poll blackout – showed a wide margin of victory for the “No” campaign. However, the bigger than expected defeat may prompt a broader sell-off than might have been expected.

Renzi’s reforms had aimed to strengthen the office of the Italian Prime Minister to make changes that he said were necessary to grow the economy, which has been slow to recover since the Eurozone crisis.

Read more: Arrivederci: Italian PM Matteo Renzi quits after crushing referendum defeat

“This referendum was seen more as a judgment call on Renzi’s premiership than the reforms on offer; by rejecting the PM Italy has displayed the same kind of anti-establishment populist sentiment that has defined 2016 for the UK and US,” said Connor Campbell, an analyst at Spreadex.

The result further imperils that recovery, threatening the country’s vulnerable banking sector as it struggles to return to profitability. Monte dei Paschi di Siena, the world’s oldest running bank, has been rushing to put together a €5bn bailout package.

If the plan falls through in the turmoil of the referendum result Italy is expected to nationalise the bank.

“Beyond Renzi’s resignation the consequences of this vote are hard to read, though it does potentially open the door for anti-EU parties like the Five Star Movement and presents another blow to Italy’s incredibly fragile banking sector,” said Campbell.

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