Euro gains reversal on French poll news

Forex traders focus on political developments in Europe, US and Asia

THE euro pared gains after scaling a five-month high against the dollar yesterday after the centrist candidate won the first round of the French presidential election, reducing the risk of an antiestablishment shock in the final round.

The euro was up 1.1% at $1.0844 (R14.08) by midday in Asia after earlier rising as high as $1.0940, its highest since November 10.

Centrist Emmanuel Macron, a pro-European Union ex-banker and former economy minister, emerged as the leader of the first round of voting and qualified for a May 7 run-off alongside the second-place finisher, far-right leader Marine le Pen.

Macron’s victory makes him the front-runner in next month’s election.

The poll outcome marked a huge defeat for the two centre-right and centre-left groupings that have dominated French politics for 60 years.

Against the yen, the euro jumped 2.1% to 119.34 , after touching a one-month high of 120.935.

Short-covering on election relief lifted the single currency and triggered stop-loss orders, market participants said, although the dust settled as the euro came off its early highs.

“We saw the big moves in the early trading hours when liquidity was thin, so we might not see anything dramatic for the rest of the Asian session,” said Mitsuo Imaizumi, the Tokyo-based chief foreign-exchange strategist for Daiwa Securities.

As the market braced for the election, net short positioning on the euro in the week ended April 18 increased to its largest since mid-March, according to calculations by Reuters and Commodity Futures Trading Commission data on Friday.

The euro’s gains dented the dollar index, which tracks the US currency against a basket of six rivals.

It slumped 0.8% to 99.179, although its losses were mitigated as the greenback gained against the perceived safe-haven yen.

The dollar was up 0.8% at 110.03 yen, rising above the 110-yen level for the first time in nearly two weeks and logging an earlier high of 110.64.

Also underpinning the dollar, the benchmark 10-year US Treasury yield rose to 2.308% in Asian trade, up from Friday’s US close of 2.236%.

The French vote and the euro’s rise come ahead of a European Central Bank policy meeting on Thursday, at which the central bank’s ultra-easy stance is set to remain unchanged.

But with the first round of France’s election out of the way, the focus of yen traders is once again turning to rising tension on the Korean peninsula, any flare-up of which could once again spark safety bids.

“It seems like the market’s more concentrated on the Korea situation again,” said Bart Wakabayashi, the branch manager for State Street Bank and Trust in Tokyo.

South Korea said yesterday it was in talks about holding joint drills with a US aircraft carrier strike group, as US President Donald Trump called the leaders of Japan and China amid fears Pyongyang could conduct another nuclear test.

North Korea said on Sunday it was ready to sink a US aircraft carrier to demonstrate its military might.

The market largely shrugged off Trump’s promise on Friday that a “big announcement” was coming this week on overhauling the US tax code.