Euro steady below three-week high, focus on French election
The euro inched higher in early European trade on Friday but remained almost a cent off this week’s highs as investors battened down the hatches for results of the first round of a tightly-fought French presidential election.
Traders said an upbeat flash purchasing manager survey from France, added to polls showing centrist Emmanuel Macron still in pole position ahead of Sunday’s voting had again been enough to settle nerves after a dip late on Thursday.
There was no obvious reaction to the shooting of a French policeman in central Paris overnight, an attack claimed by Islamic State, the euro climbing around 0.2 percent by 0834 GMT to $1.0734.
Options markets <EURVOL=> suggest investors remain worried about strong results for far right candidate Marie Le Pen and/or hard left challenger Jean-Luc Melenchon that would point to the risk of another major political shock for Europe in two weeks time.
In line with the run-in to the U.S. election and Brexit referendum last year, most investors looked to have moved to minimize their exposure going into the vote.
“I think everybody is locked down,” said Simon Derrick, head of the global markets research team at Bank of New York Mellon in London.
“It is kind of reminiscent of the big events last year where people know that it is a binary outcome so the best approach is to remain as cautious as possible.”
Other major currency pairs were also stuck in tight ranges, the dollar easing just 0.1 percent against the yen and less than that against sterling.
All eyes in UK markets were on the morning release of UK retail sales numbers, likely to provide further evidence of a weakening of the consumer demand that has propped up economic growth since the Brexit vote last June.
The pound surged 4 cents on Tuesday after Prime Minister Theresa May shocked the country by calling an early general election for June 8.
But it has struggled to make further progress since, a reflection both of the doubt around how the outcome of the election will play into Brexit talks later this year and perceived threats to Britain’s economic outlook.
“The forecasts do look low for retail sales and that probably reflects the concern over the recent run of numbers,” said a trader with one international bank in London.
“You only have to look at the election decision to see that the government thinks the economy is going to slow dramatically. If we don’t get at least 3 percent growth, the quarter in general will look very weak and that will encourage more selling of the pound.”
Source: Reuters (By Patrick Graham; Writing by Patrick Graham)