Yen sinks, Euro soars as risk appetite returns after French Election

isk appetite has returned to currency markets with investors now heavily expecting centrist and more market friendly candidate Emmanuel Macron to triumph at next month’s run-off election. The safe-haven Japanese Yen, which traders generally flock to during times of financial stress or uncertainty, has now lost almost 2% of its value since Friday’s close. By contrast, the resurgent Euro rose by over half a percent yesterday, having notched its largest one day gain since June on Monday.

Away from the G3 currencies, the Canadian Dollar was one of the day’s worst performers after the US said it would impose preliminary anti-subsidy duties of around 20% on imports of Canadian softwood lumber. CAD slumped to a fourteen month low against the US Dollar, having now surged beyond levels seen following the Presidential Election in November.

President of the US Donald Trump is poised to make a “big” announcement on tax reform today and in the absence of any other news whatsoever his comments are likely to dominate trading. The White House has claimed that Trump will be “outlining principles for tax reform”, although with concrete details unlikely to be announced at this juncture, investor may be disappointed. As part of his campaign, Trump pledged to cut corporation tax from 35% to 15%, while bringing the highest tax bracket down to 25% from 40%.

Major currencies in detail

GBP

Sterling edged higher for the day on Tuesday, with investors still fairly bullish on the prospects for the Pound in the run up to June’s General Election. The latest poll from Kantar continued to show a commanding lead for the Conservatives yesterday at 46% to 24% over Labour. The prospect of an election has so far proved good news for UK assets, given it could strengthen Theresa May’s stance within her own party and give her a firmer footing in Brexit negotiations.

First quarter GDP numbers will be released on Friday, with a modest slowdown pencilled in quarter-on-quarter. PM Theresa May will also be meeting Japanese PM Abe on Friday. However, with no major announcements scheduled for today, Sterling could trade mostly range bound.

EUR

With the French first round voting out of the way, investor now turn their attention to Thursday’s ECB meeting. The likely avoidance of a Le Pen Presidency should give the central bank more scope to hint that the period of ultra-loose monetary policy may be coming to an end soon. However, a report released on Tuesday from ECB sources claimed that no change in policy stance is likely in Europe until at least June.

French consumer confidence data will be the only economic release today. Investors will turn their attention firmly to Thursday’s ECB meeting.

USD

Housing data out of the US yesterday was overwhelmingly positive, although even that was not enough to reverse the fortunes of the Dollar which ended lower for the day against both Sterling and the Euro. New home sales surged to an eight month high in April, underlying the generally strong economic performance in the world’s largest economy, despite an apparent slowdown in the first quarter. Home sales jumped by 5.8% to just shy of its highest level since the financial crisis in 2008.

With no economic announcements whatsoever today, the US Dollar is likely to be driven almost entirely by comments from Trump.