Euro facing a ‘knockout blow’ as France goes to the polls
HOLIDAYMAKERS face a summer of yo-yoing currencies as traders fret about Brexit and a possible Eurozone break-up.
Today’s French election could lead to the euro dropping precipitously against the dollar, analysts said.
Front National leader Marine Le Pen and far-Left leader Jean-Luc Melenchon are both Eurosceptics so a run-off between them for the presidency would hit the euro.
Currency strategists at banking group ING warned clients in a note: ‘The knockout blow to the euro from the first round would be a Le Pen and Melenchon run-off.’
The pound remains far below its level before the Brexit referendum but rose markedly last week after the announcement of a UK General Election.
Sterling could strengthen further in the event of a shock result in the first round of the French election.
The euro is currently worth 84p and $1.07. ING’s currency experts said the dollar and the euro could move towards parity for the first time in 14 years. Figures out this week are likely to show that the growth in the economy slowed in the first quarter. GDP is thought to have gone up 0.4 per cent after a 0.7 per cent quarter-on-quarter rise at the end of last year.
BRITAIN’S economy stuttered in the first quarter of the year, growi ng 0.4 per cent, figures are expected to show this week.
The slowdown from 0.7 per cent in the previous quarter is set to be blamed significantly on falling consumer spending as the weaker pound put up the prices of foreign goods and essentials such as petrol, forcing cuts elsewhere.
Industrial production has grown strongly while the construction sector has also expanded more modestly. But Howard Archer, chief UK economist at consultancy IHS Global Insight, said: ‘It looks inevitable that consumer spending made a substantially reduced contribution to growth.’
A weaker GDP figure follows faltering retail sales, which fell sharply in March. Consumers are being hit as inflation rises, with foreign imports becoming more expensive as a result of the falls in sterling since the Brexit vote.
The pound rallied last week on the announcement of a General Election, but it remains sharply below its pre-referendum levels. The French elections could dent the euro, but few economists predict a dramatic turnaround for UK consumer spending this year.
Archer said: ‘We suspect 2017 will become more challenging for the UK economy, particularly for consumers as their purchasing power is squeezed. Additionally, we expect businesses to become more cautious over investment as the economy shows mounting signs of slowing. Uncertainties over the outlook are magnified by Brexit negotiations coming to the forefront, now that the Government has triggered Article 50.’
IHS expects the economy to grow 1.6 per cent in 2017 and then 1.2 per cent in 2018. It grew 1.8 per cent last year.
Meanwhile, travel bosses are worried that the June Election could damage the industry, as consumers are known to stop spending money on holidays and other big purchases during an Election campaign.
Conversely, Britain’s weaker currency has been good for UK tourism, with Visit Britain reporting record visitor numbers.