Storms on political landscape start to weaken the euro
THE euro fell another third of a percent against the dollar yesterday as concerns around a resurgence in political risk to the single currency project drove its worst run of daily losses in almost two months.
The yen, however, was up another quarter of a percent at 112.12 per dollar, a move towards the perceived security of Japan pointing to the growth in concerns around global political risks and the Trump presidency that has dominated recent days.
The dollar was wobbling at the start of this week, a low wages number having quashed bets on a rise in US interest rates next month and cooled expectations for the scale of monetary tightening this year.
Concerns over the impact on the world economy of President Trump’s protectionism and immigration policy have also weighed on the greenback, along with the new administration’s hints that it would prefer a weaker dollar.
Over the last two days, however, that has all played second fiddle to France’s presidential election race and question marks over further financial support for Greece. The dollar index had its best day in a month on Tuesday and it was up another 0.3% in early deals in Europe yesterday.
“The French political noise has brought the euro down, and that has given the dollar a reprieve,” said Gavin Friend, a strategist with National Australia Bank in London. Markets know that if Trump was to come out and start talking about tax reform and infrastructure spending, the dollar would go up.”
Uncertainty about the two rounds of the French presidential election on April 23 and May 7 drove the premium that investors demand for holding French over German government debt to its highest in more than four years. Opinion polls show Centrist Macron slightly ahead of Conservative Francois Fillon in the first round, but behind far-right National Front leader Marine le Pen, who has vowed to pull France out of the eurozone and hold a vote on its membership in the EU.
Against the yen, the euro lost half a percent to 119.48, its lowest since December 5.
Both the dollar and yen have drawn some support from a return of nerves around China’s yuan following the new year. Beijing’s foreign exchange reserves fell below $3 trillion last month for the first time in nearly six years.
“After the difficult first few weeks of the year, we see more strength for the dollar coming through,” said Alessio de Longis, a portfolio manager and macro strategist with Oppenheimer Funds in New York.
“My goal would still be the euro approaching parity over the course of this year.” – Reuters