The euro plunged to a 20-month low on Monday after Italian Prime Minister Matteo Renzi announced his resignation following a stinging defeat on constitutional reform, a move that could destabilise the country’s shaky banking system.
According to reports, at one stage the euro hit USD1.0505, its lowest level against the US currency since March 2015.
Amid fear in investors following the political crisis, the European stock markets also started on a weaker note.
“The pan-European Stoxx 600 began Monday 0.05 percentage lower with bank stocks leading the losses, falling more than 1.2 percent,” a media report said.
Earlier in the day, Matteo Renzi announced that he would be stepping down after losing a referendum on constitutional reform.
"My experience of government finishes here," Renzi told a press conference after the ‘No’ campaign won what he described as an "extraordinarily clear" victory in the referendum on which he had staked his future.
Interior Ministry projections suggested the No camp, led by the populist Five Star Movement, had won the referendum with the backing of 59.5 per cent of those who voted.
Nearly 70 per cent of Italians entitled to vote yesterday cast their ballots, an exceptionally high turnout that reflected the high stakes and the intensity of the various issues involved.
Renzi said he would be visiting President Sergio Mattarella today to hand in his resignation following a final meeting of his cabinet.
Mattarella will then be charged with brokering the appointment of a new government or, if he can't do that, ordering early elections.
Most analysts see the most likely scenario as being Renzi's administration being replaced by a caretaker one dominated by his Democratic Party which will carry on until an election due to take place by the spring of 2018.
Finance Minister Pier Carlo Padoan is the favourite to succeed Renzi as the President of the Council of Ministers, as Italy's premier is formally titled.