Profit-taking was weakening Pound Sterling elsewhere yesterday, but the GBP EUR exchange rate continued to rise thanks to investor jitters as the French presidential elections approach.
With just ten days left until the first round of voting begins, GBP EUR has been trending around a seven-week high of 1.17 and within touching distance of 1.18.
The recent strength comes despite investors choosing to realise their gains yesterday, after Sterling received a boost from events in the States.
In a pre-recorded interview for Fox Business Network, President Donald Trump claimed that the US Dollar was overvalued and that he favoured a policy of low interest rates.
This saw investors withdrawing from the US Dollar, due to the potential it could start to depreciate rapidly as markets price in lower odds of monetary tightening and further jawboning from the government.
With the Euro also afflicted by near-term risks to the downside, thanks to the upcoming elections in France, the Pound found itself in high demand, due to the fact its largest risks were already behind it; the referendum and the activation of Article 50.
This pushed Sterling higher, triggering a bout of profit-taking after the UK unit reached notable highs against a number of its peers.
Even a sell-off hasn’t put the GBP EUR exchange rate into negative territory, however, thanks to the fears currently plaguing the common currency.
Up until the beginning of April, investors had been fairly confident that centrist Emmanuel Macron would advance to the second round of voting to face off against far-right Marine Le Pen.
Poll data suggested Macron would crush Le Pen; good news for investors, as Le Pen planned to withdraw France from the Euro – the loss of its second-largest economy could have thrown the Eurozone and its currency into disarray.
However, surveys in April have shown rapidly increasing popularity for leftist candidate Jean-Luc Melenchon who, amongst other things, holds no warm feelings for the European Union or the Euro.
The data simultaneously indicated that Macron’s support may have been softening.
This has raised the possibility that both Melenchon and Le Pen could advance to the second round, meaning that France would be destined to have a Euro-sceptic president regardless of who ultimately triumphs.
This kept the Euro firmly in negative territory recently and threatens to continue to do so until the voting takes place on Sunday 23rd this month.
There is always a chance that further polls will show Macron continues to enjoy strong support and that Melenchon has no chance of making it through to the second round, which would push the Euro higher.
However, with the memories of the Brexit referendum and US Presidential Elections still haunting many investors, who paid the price for their overconfidence, it is unlikely investors will act as though the threat of Eurozone populism has been entirely averted.