The pound has closed at its highest level against the euro in three months after nervous currency traders adopted a cautious approach ahead of Italy’s constitutional referendum on Sunday.
With the poll in the eurozone’s third-biggest economy too close to call, fears that a no vote would risk a fresh economic and political crisis pushed sterling to a fifth successive week of gains against the single currency, the pound’s best run in nine weeks.
The pound was up by more than half a cent against the euro to trade at just under €1.19 and was also up against the US dollar, despite a fall in unemployment.
Investor sentiment towards the pound has strengthened in recent days after the Brexit secretary, David Davis, said the UK might pay to secure future access to the European single market and nervousness grew about the outcome of the Italian vote.
Tsvetoslav Tsonev, an economist at Fathom Consulting, said: “Concerns about Italy’s constitutional referendum and its implications are weighing on markets. They are right to be concerned.
“If the outcome results in another economic downturn, causing sovereign bond yields to spike, it could prove to be the straw that broke the camel’s back, triggering a banking crisis and eventually Italy’s exit from the euro area.”
Investors in shares and bonds preferred to adopt a wait-and-see approach ahead of the Italian referendum, which supporters hope will simplify the country’s lawmaking system by reducing the authority of one of its parliamentary chambers.
Matteo Renzi, the prime minister, has said he will resign if he loses the vote, but hard evidence of public opinion has been hard to gauge because opinion polls are banned in the final two weeks before the referendum.
Shares on Milan’s stock market were barely changed on the day, with bourses in Paris and Frankfurt showing small losses. London’s FTSE 100 closed 22 points lower at 6730.72.
Comments (…)
Sign in or create your Guardian account to join the discussion