Catalan referendum is a disruptive event for the euro, City Index says
The bigger risk to the euro is more likely to come from Spain than Germany where the upcoming illegal referendum in the Catalan region could increase the risk of Spain breaking up, according to one analyst.
Following the surprisingly poor showing by German Chancellor CDU/CSU party at the weekend, Kathleen Brooks, research director at City Index, said the euro might dip as low as 1.1650 on the back of the election results.
However, the bigger risk was the referendum in Catalonia; if it finally went ahead and if the 'yes' vote won, the potential existed for an initial sharp 5% decline in the single currency's value, according to Brooks.
"If Catalonia votes for independence, even if the vote is deemed illegal, then it could put pressure on Madrid to allow the people of the region to have a legal vote, which could increase the chance of a break up of Spain," she said.
By way of comparison, the analyst noted the behaviour of the pound in 2014, which weakened by 6% in the run-up to the Scottish referendum, followed by a 2% bounce after it failed before resuming its downtrend.