Euro soars following French Presidential Election debate

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5 May 2017

thomasdodds

The Euro rose to a near six month high against the US Dollar on Thursday, with investors growingly confident that Emmanuel Macron will triumph at this Sunday’s French Presidential Election.

W
ednesday evening’s TV debate ended with centrist Macron coming out comfortably ahead of Le Pen in a snap poll at 63% to 34%. Financial markets have now almost completely discounted the possibility that Le Pen, who has pledged to hold a referendum on EU membership should she become President, will win Sunday’s run-off vote.

Yesterday’s business activity PMI’s out of the Eurozone also provided further impetus to the rally in the single currency. The composite PMI rose to its highest level in six years in April, lessening the pressure on the European Central Bank in its bid to raise both growth and inflation within the currency bloc.

The Dollar edged lower, with markets quickly forgetting about Wednesday evening’s hawkish Federal Reserve meeting in which policy makers claimed that the slowdown in the US economy would be no more than “transitory”. Attention today will be firmly on the release of the latest nonfarm payrolls report. Consensus is for a reading around the 185k level, which in our view is more than enough to assure we’ll see another interest rate hike in the US in June, barring any external shocks.

Meanwhile, Sterling rebounded during London trading after the release of an impressive services PMI that suggested the UK economy was firmly on course to pick up pace in the second quarter following the disappointing performance at the beginning of the year.

Major currencies in detail

GBP

Thursday’s services PMI added to an impressive week of economic data in Britain that also saw above consensus construction and manufacturing figures. The services PMI rose to 55.8 in April from 55.0, its highest level in four months.

Results of the regional elections in the UK will be under scrutiny today. While not especially significant for the Pound themselves, they could give us a decent indication as to how the general election will play out next month.

With no economic news out of the UK today, Sterling will be driven largely by political factors.

EUR

Impressive economic news out of the Eurozone continued to support the single currency yesterday, with the latest round of PMI’s coming in above expectations across the board.

The services PMI for the Euro-area increased to 56.4 from 56.2, driven largely by strong performances in Germany and Italy. The overall composite PMI, which includes both manufacturing and services, also beat expectations, rising to 56.8 from 56.7. This provides further evidence to suggest that the ECB’s ultra-loose monetary policy is finally reaping rewards, while fuelling speculation that policymakers may begin to tighten towards the end of the year.

The latest growth forecasts for the Eurozone from the European Commission will be released today, and could prove a market mover.

USD

Traders overlooked the Fed’s hawkish message and generally impressive economic news out of the US on Thursday, with the Dollar more than erasing all of its post-FOMC gains.

Jobless claims were of particular encouragement yesterday, continuing to point to a general tightening in labour market conditions. Claims for last week fell sharply to just 238,000 from 257,000, putting them back around their lowest level in forty years.

Today’s labour report will be released at 13:30 UK time. As always Dollar traders will be paying close attention to the headline nonfarm payrolls number, unemployment rate and average earnings. Chair of the Federal Reserve Janet Yellen will also be speaking along with a host of other Federal Reserve members this evening after London close.