Euro and markets shrug off Italy’s Renzi rejection

The pollsters and markets were right with their referendum prediction this time...

Italian prime minister Matteo Renzi’s defeat in a constitutional reform referendum and subsequent pledge to resign sent the euro tumbling to a 21-month low overnight, though it has recovered losses as the markets take the big political development in their stride.

The single currency dropped as much as 1.4% to $2.0505 against the dollar at one point, but is now trading at $1.06. One euro will currently buy you 84 pence sterling.

The political uncertainty hasn’t bled into market panic, with European bourses expecting the ‘No’ vote in the referendum in the run-up.

The FTSE 100 climbed more than 0.8% this morning, the DAX was up 1.6% and the FTSE MIB – Italy’s benchmark index – recovered and actually turned positive. Shares in Monte Dei Paschi, Italy’s oldest bank and currently in the spotlight as its rescue plan hangs in the balance, have turned positive after failing to open this morning, and are now trading up 1.5%.

Speaking on Breakfast Business, financial analyst Paul Sommerville predicted that the referendum decision will prompt the European Central Bank (ECB) to expand their policy of quantitative easing when they meet on Thursday, which could be a “relatively good” outcome for the banking sector.

“The markets were expecting that result,” Sommerville noted, and though there would be some “selling pressure” there would not be “huge moves to the downside”.