The Euro US Dollar (EUR USD) exchange rate trended lower this morning as markets become increasingly skittish ahead of the first round of the French election on Sunday.
The election is currently seen as a race between the independent centrist Emmanuel Macron and the far-right Eurosceptic Marine Le Pen, with the two expected to make it to the second round, in which Macron is seen as the clear favourite.
However two other candidates remain in contention, with left-wing veteran Jean-Luc Mélenchon and Republican François Fillon still within striking distance in the polls, with Mélenchon’s recent surge in support suggesting that neither candidate is out of the running yet, casting further uncertainty over EUR USD.
The terror attack yesterday evening on the Champs Élysées has also prompted concerns that the electorate could lean further towards Le Pen’s National Front as her focus on national security and limiting immigration may resonate with the French electorate.
Pascal Perrineau, head of the Cevipof political research foundation at Sciences Po University said in an interview with the Anglo-American Press Association last month;
‘This is an election unlike any other; never before has a presidential vote happened in a state of emergency, which means the democratic process is under certain constraints. An attack could intrude on the electoral campaign; it could have an effect on the results right up until the second round. This we have never seen before.’
EUR investors are also unwilling to rule out a possible ‘nightmare scenario’ in which both Le Pen and Mélenchon make it to the second round as the potential for a run-off between two candidates who both seek the leave the EU could inflict irreversible damage on the Eurozone.
Meanwhile, the US Dollar’s gains have slowed over fears that Trump’s second attempt to push healthcare reforms through congress could also be doomed to fail.
Whitehouse officials are reportedly rushing to resurrect the bill ahead of his 100th day in office in order to show that Trump’s administration is dedicated to making progress on repealing Obamacare, a major cornerstone of his presidential campaign.
However, with congress currently facing a potential government shutdown if lawmakers cannot agree upon a new budget, markets fear that the revised healthcare bill could be dead on arrival.
A second defeat in congress would be a major blow to the US Dollar, prompting further questions over Trump’s ability to deliver upon his promise to implement tax reforms and increase infrastructure spending.
Looking ahead, the direction of the EUR USD exchange rate is likely to largely be determined by the first round of voting in the French Presidential election on Sunday, with a strong showing of support for Macron likely to send the pairing higher.
Meanwhile, on the data front a resilient reading from Germany’s latest Business Climate figures on Monday may also help the Euro strengthen if it holds at 112.3 as expected.
However, the US Dollar is likely to advance this afternoon with the release of March’s US Existing Home Sales figures which are expected to reach 5.6m, up from 5.48m the month before.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.07 and the USD EUR exchange rate was trending around 0.93.