The euro jumped against the US dollar on Monday after Italian Prime Minister Matteo Renzi's loss in a referendum over constitutional reform, a defeat that traders had widely expected. Renzi is set to resign on Monday after the decision. The size of the "No" vote, at 59.1 percent, was more emphatic than had been forecast.
Renzi's resignation could open the door to an early election next year and the possibility of the anti-euro 5-Star Movement gaining power, though many investors and analysts see it as more likely that a caretaker government will be put in place until an election in 2018. "The market had a lot of time to prepare for a no vote ... there is nothing as yet imminently more negative than what the market had anticipated," said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York.
Expectations that the European Central Bank (ECB) will hint at reducing its bond purchase program when it meets this Thursday is also seen as adding to strength to the single currency. "The imminence of the ECB meeting is another factor that has led to the recovery of the euro today," Jalinoos said. The euro gained 0.96 percent to $1.0774, after earlier rising to $1.0796, the highest since November 15. It briefly weakened to $1.0503, the weakest since March 2015, in the immediate aftermath of the Italian vote.
The greenback also weakened to three week lows against a basket of currencies on Monday as investors viewed recent dollar strength as overdone. A solid but unexceptional US jobs report for November on Friday failed to add additional fuel to the dollar rally sparked by Donald Trump's surprise presidential election victory on November 8.
US non-farm payrolls increased by 178,000 jobs last month after rising by 142,000 in October, the Labor Department said on Friday. However, wages slipped for the first time in nearly a year. "The dollar has overshot the rates story, and market positioning has moved kind of quickly, and so there is some scope for it to pull back over the next couple of weeks," said Mark McCormick, North American head of foreign exchange strategy at TD Securities in Toronto. The dollar index, which measures the greenback against a basket of six major currencies, slipped 0.67 percent to 100.09, after earlier dropping to 99.849, the lowest since November 15.