Political risk in Europe heavily rattles the pound and euro

Tuesday’s session had the euro and sterling under pressure as investors were rattled by political risks, but stock markets turned more bullish, leaving Wall Street eyeing record levels. Government bond yields nudged higher and the stronger dollar is hitting gold, losing $8 to $1,228 per ounce, as demand for havens wanes.

The euro was down 0.8% to $1.0665 and the yield on French 10-year government bond, which moves inversely to the price, early in the session hit 1.154, its highest since September 2015. The latter on concerns that difficulties facing France’s one-time frontrunner, the centre-right’s François Fillon, could bolster support for the far right and anti EU candidate Marine Le Pen of the National Front.

Overall sentiment in stock markets improved leading in to the afternoon Wall Street session. US index futures suggested that the S&P 500, which closed on January 25 at a record high of 2,298.4, will gain five and a half points to 2,298. The pan-European Stoxx 600 was also 0.5% up, even as shares of BP weigh following poorly-received results.

In Japan the broad Topix index lost 0.3%, not helped by a firmer yen on Monday, and Hong Kong’s Hang Seng shed 0.1%. Mainland Chinese bourses matched the cautious mood, with the Shanghai Composite and Shenzhen Composite down 0.1 and flat, respectively. Data released after markets closed showed China’s forex reserve’s falling below $3tn for the first time since 2011 after Beijing spent money propping up the renminbi in the face of capital flight.

Oil prices were sliding, adding to Monday’s losses, amid concerns over more aggressive pumping by US drillers. Brent crude, the international benchmark, is off 0.3% to $55.57 per barrel after falling 1.9% on Monday.