The Euro underperformed in overnight trade after Italians resounding rejected a proposed constitutional change making it easier for a ruling government to remain in power in a referendum over the weekend. Prime Minister Matteo Renzi, who backed the measure, said he would resign following the loss.
The news stoked soured market-wide sentiment, with the anti-risk US Dollar and Japanese Yen trading higher while Asian stocks and S&P 500 futures fell. Financial markets are worried that Mr Renzi’s departure will usher the anti-Euro Five-Star Movement (M5S) into power.
The referendum outcome may be a blessing in disguise for markets trembling at the thought of what may happen if an administration determined to take the Eurozone’s third-largest member out of monetary union. The “no†vote likely means M5S can’t take power without forming a coalition, a move it staunchly opposes.
Near-term uncertainty may keep pressure the single currency for now but follow-through might prove challenging as the ECB rate decision looms ahead. Significant changes to the central bank’s stimulus effort are expected and traders probably won’t want to show strong directional commitment until detail emerge.
The New Zealand Dollar likewise faced selling pressure as Prime Minister John Key unexpectedly announced that he will step down from his post and opt not to contest next year’s election. The markets were caught unprepared for the announcement, triggering a knee-jerk selloff.
Looking ahead, November’s service-sector and composite UK PMI readings headline the European data docket. The outcomes may not generate a significant response from the British Pound however as traders wait for the UK Supreme Court to decide if the government needs Parliament’s approval to trigger Brexit.
The administration is appealing a High Court decision that held Prime Minister May can’t unilaterally trigger Article 50 of the Lisbon Treaty formally initiating the UK exit from the EU. Markets see a need to go through Parliament as likely to yield a “soft†rupture that keeps access to the single market vs. the “hard†alternative.
