MercoPress. South Atlantic News Agency

Euro skids to a 20-month low on Rienzi's resignation; all eyes on EU Central bank

EU Central Bank meets Thursday amid much speculation it will decide a six month extension of its asset buying program and widen the type of bonds it can purchase.

The Euro skidded to a 20-month low after Italian Prime Minister Matteo Renzi said he would resign following a stinging defeat on constitutional reform that could destabilize the country's shaky banking system. Renzi's defeat deals a body blow to the European Union already reeling under anti-establishment anger that led to the shock exit of UK from the club in June this year.

 The single currency, which slumped as much as 1.4% to US$1.0505, after opening at around US$1.0685, recovered a bit to US$1.056. The drop to its lowest was the sharpest fall since June and opened the way to a retest of the March 2015 trough around US$1.0457.

In the Far East the Euro slid as much as 2.1% to 118.71 Yen, but pared some of the losses to trade down 0.9% at 120.08 yen. The US dollar was also supported by expectations of a US rate increase this month and gained 0.2% to 113.78 Yen

Investors and Europe's politicians fear victory for the opposition 'No' camp could cause political instability and renewed turmoil for Italy's banking sector, which has been hit by fears over its huge exposure to bad loans built up during years of economic downturn.

“For markets, the risks posed by Italy’s 'no' vote are about the potential for political instability and the possibility of an election in Italy rather than with any missed opportunity for long term constitutional reform,” Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in a note.