(Bloomberg) -- The euro dropped after Spanish police brutalized supporters of an illegal referendum for the Catalonia region.
Europe's shared currency snapped a two-day rally after riot police who were instructed to seize ballot boxes were photographed also beating people near voting sites. Images of the crackdown filled social media, and it wasn't clear if and when the votes would be counted. No referendum took place, Spanish Prime Minister Mariano Rajoy said in televised comments on Sunday.
“A misstep by the central government could lead to an escalation of the confrontation” following the vote, Barclays Plc strategists Apolline Menut and Antonio Garcia Pascual wrote in a note before the vote. “We cannot completely dismiss these kinds of scenarios, which could logically have a more negative market impact.”
The euro fell 0.2% to $1.1791 in early Monday trading in Sydney. The single currency posted its first monthly decline versus the dollar since February last month, dropping 0.8 percent.
Before the Catalonia vote, little premium was priced into markets. The extra yield that investors demand to hold Spanish 10-year government bonds over similar-maturity German bunds, the euro-region's benchmark sovereign securities, narrowed six basis points to 114 basis points in September.
To contact the reporters on this story: John Ainger in London at jainger@bloomberg.net, Michael G. Wilson in Sydney at mwilson176@bloomberg.net.
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Keith Jenkins, Todd White
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