EUR: Political risk in focus ahead of Italian constitutional referendum – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the main focus in the week ahead for the euro will be the upcoming Italian constitutional referendum on the 4th December which poses some downside risk for the euro heading into next year.

Key Quotes

“It follows the second round of the Republicans party primary in France which resulted in a clear victory for Francois Fillon who secured around two thirds of the vote compared to one third for Alain Juppe. He has pledged market friendly economic reforms including EUR40 billion in business tax cuts. The corporate tax rate could be cut to 25% from 34.4% at present.”

“The final opinion polls ahead of the Italian constitutional referendum signal that the public is likely to narrowly reject the reforms by a slim margin of around 52% to 48%. However, there is a large portion of undecided voters which adds to the uncertainty. As the referendum is seen a vote of confidence in the government as well, it increases the likelihood that the reforms will be rejected. The FT has reported today that up to eight of Italy’s troubled banks would risk failing if market turbulence deters investors from recapitalising them according to officials and senor bankers.”