Daily Management Review

Italian referendum challenges streght of the euro


12/05/2016


Citi expects devaluation of the euro against the dollar by 7.5%. to the level of 0.98 euro to the dollar, in the next 6-12 months, the bank said in a report to investors.



Now, it is around $ 1.06 per euro. Within three months, the bank's analysts expect a decline to $ 1.05 per euro, and then - for a period of 6-12 months - to $ 0.98 per euro. In the long term, Citi expects the rate of $ 1.05 per euro.

Citi also expects weakening of the British pound to the current $ 1.23 per pound to $ 1.14 per pound for 6-12 months.

Current fall of the euro against the dollar to a minimum of 20 months, to about $ 1,057, has become result of political uncertainty in Italy, the fourth EU economy.

Some analysts surveyed by Bloomberg predicted a weakening of the euro below $ 1 in 2017. This opinion is shared by 10 of the 53 experts; two out of economists 53 expected such an income last month. In particular, Deutsche Bank predicts that the euro will cost $ 0.95 in 2017, while analysts of Societe Generale and National Australia Bank believe that the euro can equal to the dollar in April 2017.

"Sale of the euro was the first reaction to resignation of Renzi, but the most important thing is disbanding of parliament and new elections in Italy. Elections in the Netherlands, France, Germany and Italy next year will keep the euro under pressure. It may go down in value to $ 1.02 in January - March," - said Chief Market economist at Mizuho Bank Tokyo.

Beppe Grillo, leader of Italian Eurosceptic party Five Star Movement will benefit the most from failure of the constitutional reform. His party plans to hold a referendum on membership of Italy in the EU. After resignation of Renzi, the country is likely to hold early elections next year, writes The Wall Street Journal. Thus, in 2017, all three countries - founders of the EU (Germany, France and Italy) will elect new government.

Negative market reaction to the Italian referendum’s results are unlikely to be sustained, say analysts of Raiffeisenbank. Resignation of Prime Minister Renzi will be followed by early parliamentary elections in the country. However, if the ruling party forms a new government, or President appoints the interim government, the early elections, which can bring Eurosceptics to power, will be delayed until 2018.

"Negative consequences for stability of the euro may emerge in the medium term. So, with advent of so-called eurosceptics, the risk that Italy would leave the EU will increase. Outcome of such a referendum could strengthen position of eurosceptics in other countries - France and Germany", - the message says.

source: wsj.com






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