Markets remained in risk-on mood in European trading on Tuesday with the euro nudging further upwards against most of its major peers, while the safe-haven yen extended its declines. European and US equities also continued to make gains on the back of Sunday’s French election result where the centrist Emmanuel Macron became the frontrunner to win the second round on May 7.
The euro was pushing towards fresh highs against the US dollar as it powered ahead to hit a new 5-month peak of 1.0932. Sentiment for the single currency improved dramatically after the first round of voting in France’s presidential election put Macron with a near three-point lead ahead of the far right Marine Le Pen, allaying concerns of another Brexit or Trump-style shock. The latest French polls put Macron at 61% and Le Pen at 39% in the second round.
The absence of any major data out of the Eurozone today ensured that the French election stayed at the forefront of investors’ minds. The next risk event for the euro is the European Central Bank meeting on Thursday, but the central bank is not expected to deviate from its forward guidance provided at the March meeting and will likely repeat its pledge to maintain monetary policy accommodation at current levels until at least the end of the year.
The renewed optimism for the Eurozone also drove the single currency higher against the pound and the yen. The euro surpassed yesterday’s 5-week high against the yen to break above the 121 level, while against the pound, it climbed to a 2-week high of 0.8523.
The pound has come under pressure versus the euro this week even as it makes fresh multi-month highs against the dollar and the yen. Aside from the election boost helping the euro, sterling is being weighed by worries that a Macron win in the final round would hurt Britain’s chances of negotiating a good Brexit deal given that Macron favours further EU integration and has been a critic of the UK’s decision to leave the EU.
Sterling stood slightly higher against the dollar in late European trading at 1.2813 and was over 1% firmer versus the yen at 142.02. The only data out of the UK today were the government borrowing figures for the fiscal year ending March 2017. Public sector borrowing for 2016/17 came within the government’s target, giving Philip Hammond, the UK finance minister, some good news ahead of the June 8 general election, as well as some fiscal ammunition going into the Brexit negotiations.
The weaker yen also lifted the greenback, which advanced to a fresh 2-week high of 110.82 yen at the start of North American trading. Further supporting the dollar on Tuesday were strong US housing data. The S&P CoreLogic Case-Shiller composite index, which measures house prices in 20 urban areas in the US, rose by a bigger-than-expected 5.9% in February compared to 12 months ago. New homes sales numbers were also released today, which beat estimates too and offset slightly disappointing consumer confidence data.
New home sales in the US increased by 5.8% month-on-month in March, sharply up from a downwardly revised 0.3% rise the prior month and compare with expectations of a 0.8% drop. Finally, the Conference Board’s consumer confidence index eased from a revised 124.9 in March to 120.3 in April, falling short of estimates of 122.5.
Investors will now be eyeing tomorrow’s announcement by the US Treasury Department where the first concrete details about the proposed tax cuts are expected to be unveiled. While it will probably be some time before any tax reforms are passed by Congress, a big-enough overhaul could give the dollar a much-needed boost.
The Canadian dollar underperformed today after taking a knock from the US Commerce Department’s unexpected decision to impose import duties on Canadian softwood lumber. US Commerce Secretary Wilbur Ross made the announcement yesterday, saying the move to impose tariffs averaging 20% was to protect US lumber producers from unfair subsidies being received by Canadian producers.
The loonie fell to a one-year low, with USD/CAD hitting 1.3613 in late European session, as fears grew of an escalating trade spat between the two countries, with President Trump pointing fingers next at the dairy industry.
In commodities, gold remained stuck near yesterday’s two-week lows and last stood at $1267 an ounce. Oil meanwhile was struggling to end a run of six straight days of losses as doubts grew about whether Russia would sign up to an extension of the current output deal, which expires in June. US crude was down 0.4% at $49.04 a barrel in late European trading, while Brent crude was 0.3% lower at $51.44.