FX market outlook

FX market outlook

Posted on Monday, April 24 2017 at 8:12 am GMT+0000

Euro spikes and gold slips as markets see relief rally after first round of French elections.

The euro spiked to a five-month high against the dollar on the news that Emmanuel Macron passed through to the second round of the French elections with the most votes. The centrist candidate is viewed as market-friendly as he is pro-business and pledges to boost the French economy with a multi-billion-euro stimulus plan if he becomes president.  The latest vote count showed Macron winning 23.9% of the votes against 21.4% for far-right candidate Marine Le Pen, according to figures from the French Interior Ministry with 96% of votes counted.

The euro opened on Monday with a more than 1% gap up from Friday’s close of $1.0723, to surge to an Asian session high of $1.0919 before easing back on profit-taking. The euro also jumped against the British pound to briefly reach 85 pence. Gains may be limited for the single currency as investors will start to look to the second round of the French elections on May 7, when Emmanuel Macron and Marine Le Pen battle it out for the presidency.

A boost in market sentiment lifted US Treasury yields and equity markets, as one of the biggest risk events of the year has passed. A relief rally saw dampened demand for safe havens such as the yen and gold.

There was a big move up in the dollar against the yen which brought the pair back above the key 110-yen level, to hit a session high of 110.58, the strongest level since April 11. The euro also jumped against the safe haven Japanese currency to hit 120.75 yen, a near one-month high, before easing back below the 120-yen level.

Gold slipped to its weakest level in seven weeks to $1265.33 an ounce as market jitters over the French elections eased.

Markets were nervous ahead of the first round of the French elections because they feared a strong win by Le Pen, who is anti-euro, and would be catastrophic for the European Union, especially after the UK’s Brexit vote.

While investors digest the news of the French elections, there will be some economic data to look ahead to today. These include the German Ifo survey and the UK’s CBI industrial order expectations. A speech by FOMC member Neel Kashkari later on will also be interesting to watch.