Political risks are still all the rage in the currency markets.
The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box.
The single currency has shed 4.5 per cent against sterling this month, with the tables turning on the euro after it had strengthened sharply against the pound in the wake of the Brexit vote in June.
Eurozone investors have been spooked by the prospect of reformist Italian prime minister Matteo Renzi resigning from office should he lose a key vote on constitutional reforms on Sunday. Polls indicate Mr Renzi’s ‘Yes’ side will lose out, sparking his resignation and throwing into turmoil crucial plans to clean up the banking system in the eurozone’s third largest economy.
The euro has also shed 5.5 per cent against the dollar since Donald Trump’s election this month, and is trading at $1.0648 at publication time.
This Sunday also marks a re-run of Austria’s presidential election, where the independent, pro-European Alex Van der Bellen is facing eurosceptic, right-wing candidate Norbert Hofer. Polls show the result is too close to call, but a victory for Mr Hofer would mark the first major triumph for an anti-EU candidate in Europe following Mr Trump’s election.
“[Mr Hofer] has repeated his EU criticism saying the EU is in a deep crisis and he would push for an ‘Öxit’ if national parliaments are deprived of power by a more centrally organized EU or if Turkey becomes a member of the EU”, says Heiko Peters at Deutsche Bank.
The prospect of France’s presidential elections are also weighing on the euro, with the race set to be fought out between a ring-wing former prime minister and the far-right, nationalist Marine Le Pen.
“Whatever the final result, chances are Ms Le Pen will have the most votes after a first round in which the main candidates on both the left and right wings are diluted by outliers” said Kit Juckes at Societe Generale.
“I can’t see how the euro stages more than short-covering bounces before then”.
Charts courtesy of Bloomberg