Euro below 5-month high, ‘loonie’ lumbered with US tariff

THE EURO edged back towards the previous day’s five-month high yesterday after posting its biggest one-day rise since June on growing confidence that the market-friendly Emmanuel Macron would beat far-right rival Marine le Pen to become the next French president.

The Canadian dollar, or loonie, skidded to four-month lows after the US slapped duties on Canadian softwood lumber.

On Sunday, the centrist Macron won the first round of the French election, sending the euro surging above $1.09 as investors took heart from opinion polls showing that Macron would soundly beat Le Pen in the run-off on May 7.

The euro was up 0.2% in morning trade at $1.0891, less than half-a-cent from a high of $1.0940 after Sunday’s poll results.

The outcome of the first round spared investors their worst-case scenario of Le Pen facing off against far-left eurosceptic Jean-Luc Melenchon.

The fact that the pollsters had accurately predicted Sunday’s result bolstered confidence in their projection that Macron would win the second round, by a margin of 20 percentage points or more. This increased confidence meant political risk was being priced out of the euro ahead of the second round, with implied volatility having fallen sharply.

“This (second round) is going to be a non-event for the market,” Commerzbank currency strategist Thu Lan Nguyen said. He added that focus around the euro would now increasingly turn to monetary policy.

The European Central Bank meets tomorrow, although it is not expected to announce that it is winding down its asset purchase programme until later in the year, which should lift the euro.

The Canadian dollar fell 0.5% to C$1.3570, its lowest since December, against its US counterpart, after US Commerce Secretary Wilbur Ross said his agency will impose new anti-subsidy duties on Canadian softwood lumber imports.

Despite gains against most major currencies, the US dollar index – which is heavily exposed to the euro – slipped 0.1% to 98.983.