The euro dropped to its lowest point since March 2015 following the announcement that Italy’s Prime Minister, Matteo Renzi, would be resigning.
Mr Renzi made the decision to step down after a crushing defeat in a referendum on constitutional reform.
He had previously pledged to quit should voters reject his plans to reduce the role of the Senate in the country.
It is expected that the ‘No’ camp, who had argued that Mr Renzi’s intentions would be dangerous for democracy, will win the referendum with 60% of the vote.
The euro dropped by as much as 1.4% on the news, bringing it to a 20-month low against the dollar of $1.0505 before recovering slightly.
The overnight decline marked the euro’s sharpest since the UK’s vote to leave the EU became clear in June.
The currency changes have not yet had a major impact on the pound, which is trading only slightly lower, but the volatility will be good news for Americans visiting Europe as they’ll see their dollars go further.
But according to Kathleen Brooks, research director at City Index Direct, the market reaction on Monday morning may not be as bad as could be expected.
“While the markets are likely to remain nervous as we start a new week, they haven’t fallen off a cliff, so far,” says Brooks.
“Either markets are becoming immune to political risk, or they are taking the view that the Italian issue will be a slow-burner – even if the President can’t form a government, he still has 70 days to try and that seems quite far away at this stage.”
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