Euro hit by French referendum fears

The euro continued lower on Thursday morning, hit by fears that French voters will turn down the European constitution when they vote in a referendum on Sunday.

The euro was trading at USD 1.2537 per EUR early Thursday, compared with 1.2564 at the European Central Bank fixing session on Wednesday.

Since the beginning of March, when the euro was trading at over USD 1.32, the euro has slipped over 5% against the dollar.

Although the text of the constitution has little impact on fiscal or monetary policy in the euro-area, rejection by a key member state is seen by pessimists as heralding a period of crisis for the newly enlarged European Union.

Early German elections that are likely to result in a shift of power, and will bring in a government that opposes Turkey’s EU membership, are also weighing on confidence.

The euro is also being hit by economic developments, however. While the US economy shows signs of growth–thus pointing to higher US interest rates–a disappointing survey of German business confidence on Wednesday suggests that euro-area interest rates will remain on hold for the time being.