- Euro US Dollar Trends Slips to 1.06 – Falls from Thursday highs
- French Election Polls Give Euro a Boost – Investors hope for Macron win
- Eurozone PMIs Impress – But French election jitters keep Euro weak
- Forecast: French Election Round One – Markets to react to results on Monday
Euro US Dollar Slips on Friday as French Election Jitters Worsen
The Euro US Dollar exchange rate slipped on Friday after falling from its highs on Thursday evening.
French Presidential election jitters worsened throughout the day and investors were generally hesitant to buy the Euro due to the wide number of possible outcomes – some Euro positive and some Euro negative.
Investors overlooked Friday’s Eurozone PMIs from Markit – despite the results being much more impressive than the day’s US Markit PMIs.
Monday will see big movements in Euro exchange rates. The shared currency will drive EUR USD as investors react to the results of the French election’s first round.
The better pro-EU candidates Macron and Fillon perform, the better the Euro will perform next week. On the other hand, better-than-expected polling from anti-EU candidates Le Pen and Melenchon would cause the Euro to drop.
[Previously updated 16:50 BST 20/04/2017]
Euro US Dollar Extends April Highs on French Election Hopes
Market hopes of a French Presidential election win for pro-EU centrist Emmanuel Macron strengthened the Euro US Dollar exchange rate on Thursday. EUR USD was able to easily capitalise due to ‘Greenback’ weakness.
However, the pair may shed some of these gains on Friday. While some analysts have suggested it’s unlikely anti-EU Marine Le Pen will win the election, the first round of the election will be too close to call until after it actually takes place on Sunday.
After last year’s Brexit and Trump votes, markets are highly uncertain. This could weaken the Euro on Friday.
[Published 11:29 BST 20/04/2017]
This week has seen the Euro US Dollar exchange rate put in solid gains as geopolitical tensions remain high in US markets. Euro traders, on the other hand, have become more hopeful that the French election will come and go without an anti-EU candidate taking power.
EUR USD began this week trending at the level of 1.06, but the pair has since recovered to levels above 1.07. Thursday saw EUR USD reach its best levels since March.
Euro (EUR) Firms as Investors Prepare for First Round of French Election
The Euro has been able to advance against a weakened US Dollar this week despite French election jitters. Glimmers of optimism in foreign exchange rate markets about the French Presidential election have also bolstered the Euro. The first round of the election will take place this coming Sunday.
The latest opinion polling figures for the first round, from Harris Interactive, put pro-EU centrist candidate Emmanuel Macron at 25%. Macron has become the market favourite to win due to his popularity and his pro-EU stance.
His most popular opponent is perceived as the most threatening to the Eurozone to markets. Far-right, anti-EU candidate Marine Le Pen had 22% according to Harris Interactive’s latest poll.
Two others, centre-right pro-EU Francois Fillon and far-left Eurosceptic Jean-Luc Melenchon weren’t too far behind, at 19% each. Only two candidates can go forward into the second round face-off.
Analysts and bookmakers are making full use of the final market days before the first round to pump out statistics on the likely outcomes of what has very much become a four-horse race and one of the most unpredictable French elections in decades.
Antonio Barroso from Teneo Intelligence believes that the biggest chance of an anti-EU win would come if Le Pen were to face off with Fillon, due to Fillon’s recent controversies. He stated;
‘The worst-case scenario in terms of a potential Le Pen victory is a runoff between Fillon and the leader of the National Front. …
The risk is that center-left voters decide to stay at home on 7 May, allowing Le Pen to be elected by voter neglect rather than by voter endorsement.’
US Dollar (USD) Limp as US Political Jitters Persist
The US Dollar has simply lacked appeal over the last week. Markets remain concerned about the heating up rhetoric between the US and North Korea, especially as both nations have warned that military action could be taken if tensions worsen.
The possibility of military action, as well as dovish comments from US President Donald Trump, have caused bets of further monetary policy tightening from the Federal Reserve to drop as well. Trump recently surprised investors by stating he preferred low interest rates.
Bets of a Fed rate hike in June or sooner have fallen from 66.5% to 43.7% in the last week.
This week’s US data has been largely overlooked. However, Monday and Tuesday’s US manufacturing figures coming in below expectations have slightly increased concerns that the US manufacturing sector could be slowing.
Euro US Dollar Forecast: French Election Remains Market Focus
While Friday will see the publication of key Eurozone data, as well as US ecostats, the imminence of the first round of the French Presidential election will be the main focus point for markets.
Eurozone ecostats have been generally solid lately. The European Central Bank (ECB) has been optimistic about the bloc’s economy and has indicated that deflation risks have largely vanished.
In fact, most of the Euro’s weakness in recent months has been largely due to anxiety surrounding the French Presidential election – which is being seen as the single biggest threat to the Eurozone itself due to the possibility that major candidates wish to take France out of the Euro.
The highly uncertain polling figures will leave Euro traders anxious until after the voting is over. Even if the predicted first round result occurs with Macron and Le Pen going on to the second round, traders will remain anxious but the Euro will recover slightly.
In the possibility that the second round sees Le Pen against Fillon or even Le Pen against Melenchon, the Euro will plummet and fears of a Frexit will soar.
Even if Friday’s Eurozone PMIs impress traders, the Euro’s movement may be limited until the French election results alter long-term Euro bets. Friday’s US PMIs from Markit could weaken the US Dollar slightly if manufacturing disappoints, which will likely see the Euro US Dollar exchange rate holding its recent highs.