Forex

Euro tumbles as Macron calls snap French election

Published

4 months ago

June 10, 2024

By Karen Brettell and Alun John

NEW YORK/LONDON (Reuters) – The euro fell sharply on Monday after gains by the far right in European Parliament elections on Sunday prompted French President Emmanuel Macron to call a snap national election.

The uncertainty in France adds one more element to what will be a busy week for markets with U.S. inflation data due on Wednesday, the same day as a Federal Reserve policy meeting, and a Bank of Japan meeting rounding off the week.

The euro dropped 0.6% on the dollar to $1.0735, its lowest since May 9. It also fell 0.5% on sterling to a near two-year low of 84.49 pence, and was last down 0.5% on the Swiss franc at a seven-week low of 0.9632 francs.

The increase in support for right wing parties was “generally what was expected, but the surprise element is that Macron has reacted by calling a snap election, so that makes the market more nervous,” said Lee Hardman, senior currency analyst at MUFG.

The U.S. dollar was also boosted after Friday’s jobs report showed that employers added more jobs than expected in May, while wages also rose more than anticipated, leading traders to pare back expectations that the U.S. central bank will cut rates as soon as September.

“The market was clearly caught wrong footed,” said Paula Comings, head of foreign exchange sales at U.S. Bank in New York.

Wednesday’s consumer price index (CPI) for May will be the next major data point to drive Fed expectations.

If inflation comes in softer, “the market’s going to feel some relief. I think the dollar could weaken, but probably not out of its recent range,” said Comings. “But on the other hand, I think if inflation doesn’t let up and the number comes in high, the die is cast to the Fed.”

In that scenario, “euro/dollar would continue to trade down towards the lower end of the range” and it will “impact (emerging market) currencies disproportionately,” Comings said.

Fed officials have said that they want to see several months of inflation falling back closer to their 2% annual target before cutting rates.

Economists polled by Reuters expect headline consumer price inflation to ease to 0.1%, from 0.3% last month, and core price pressures to remain steady on the month at 0.3%.

Fed policymakers will update their economic and interest rate projections when they conclude their two-day meeting on Wednesday.

At the last such release in March, the median projection was for three 25 basis point cuts this year and investors anticipate the new forecast will show an expectation of fewer rate reductions.

The was last up 0.26% at 105.33, the highest since May 14.

The paring back of expectations for rate cuts has been supporting the dollar for much of 2024, with the Japanese yen the worst performer due to the large interest rate gap between the U.S. and Japan.

The dollar was last up 0.15% on the Japanese currency at 156.93 yen, having jumped 0.7% on Friday after the payrolls print.

The Bank of Japan will hold its two-day monetary policy meeting on Thursday and Friday, with the central bank widely expected to maintain short-term interest rates in a 0-0.1% range.

Reuters reported last week that BOJ policymakers are brainstorming ways to slow its bond buying and may offer fresh guidance.

In cryptocurrencies, bitcoin gained 0.06% to $69,319.

Forex

US dollar gains as US election draws nearer – UBS

Published

15 hours ago

October 17, 2024

Investing.com – The US dollar has gained more ground as the US presidential election draws near, UBS noted, with the market seeing rising odds of a win for Republican candidate Donald Trump.

A new USD-positive over the past week has been media reports of somewhat better outlook for Donald Trump in the latest polls, as outcomes that allow for policies such as more aggressive tariffs are viewed as more USD positive.

“Higher odds of a Trump presidency are likely to be associated with a stronger USD near term,” said analysts at UBS, in a note dated Oct. 16.

Where does this leave us now with our USD views?

Our expected ranges between Sep–Dec 2024 incorporated the possibility of a material USD rebound between now and year end, even if our year-end forecasts see a modestly lower USD from current levels.

Last week, with an eye to our year end forecast, we entered a long call reverse knockout, but we are not willing to implement a similar trade yet for and .

The spot is still far enough from our range extremes and high JPY implied volatility and negative carry make long JPY positions unattractive so close to US elections.

Turning to this week’s ECB meeting, the market is very confident that another 25bp rate cut will be delivered and we do not have a strong reason to disagree.

Market expectations are very muted for any form of surprise, and risk reversal skews bid again for EUR puts point to a market that is already primed for the risk of EUR softness.

With market pricing in line with our economists’ terminal rate expectations, we see EUR/USD as more exposed to US developments near-term, leaving us reluctant to fade recent softness on ECB reasons alone.

At 06:30 ET (10:30 GMT), EUR/USD rose 0.1% to 1.0894, USD/JPY gained 0.1% to 149.34 and AUD/USD fell 0.2% to 0.6685.

Forex

Sell euro rallies around the ECB meeting – Citi

Published

15 hours ago

October 17, 2024

Investing.com – The European Central Bank holds its latest policy-setting meeting later this week, and Citigroup advises selling any rallies in the euro around this key event.

Markets are pricing in around 49 basis points of easing over the remaining two ECB meetings this year, which could limit dovish repricing around Thursday’s event, according to analysts at Citi, in a note dated Oct. 15.

“We see scope for a tactical bounce in EUR around this Thursday’s ECB meeting, which we like fading into November as US election risk premium materializes,” Citi said.

That said, “we like fading any subsequent rallies in EUR as we approach November and US election risk premium gets better priced.”

There is some evidence of this unfolding, the bank added, as EUR looks undervalued on its short-term fair value model and as Citi’s FX Positioning data suggests adding to EUR shorts.

“But our broader FX election basket still screens as undervalued relative to Trump betting markets, and we remain short EURUSD in both spot and options,” says Citi. “We would look to sell any retest of the 1.10 double top neckline — any break above there risks a move towards our adjusted stop of 1.1050, but if that resistance holds, we have higher conviction of a move towards our (and the double top) target of 1.08, with potential overshoot towards 1.07.”

At 05:25 ET (09:25 GMT), traded largely flat at 1.0892, almost 2% lower over the last month.

Forex

Dollar gains on trimmed rate expectations; sterling weakens post inflation

Published

15 hours ago

October 17, 2024

Investing.com – The U.S. dollar edged higher Wednesday, trading near two-month peaks on expectations of modest rate cuts from the Federal Reserve this year, while sterling slumped after benign inflation data.

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.180, remaining close to Monday’s two-month peak.

Dollar helped by trimmed rate cut expectations

Recent data indicating a resilient economy coupled with slightly hotter-than-expected inflation in September have led market participants to trim bets for an aggressive U.S. rate reduction.

Adding to these expectations were comments from Atlanta Federal Reserve President on Tuesday, who said he had penciled in just one more interest rate reduction of 25 basis points this year when he updated his projections for last month’s U.S. central bank meeting.

Most market participants see two more cuts this year, totaling 50 bps, and traders currently lay 92% odds for a 25-basis-point cut when the Fed next decides policy on Nov. 7, with an 8% probability of no change, according to CME Group’s (NASDAQ:) FedWatch Tool.

Sterling slumps after inflation release

In Europe, slumped 0.5% to 1.3003, after data showed British inflation fell more than expected in September, paving the way for a rate cut next month.

The UK’s fell to 1.7% on an annual basis, below the forecast 1.9% and the 2.2% recorded a month earlier.

This was the first time it had fallen below the Bank of England’s 2% target since April 2021, and added to data seen earlier in the week that showed British pay grew at its slowest pace in more than two years.

“The data is unequivocally dovish for the Bank of England and paves the way for rate cuts at the two remaining meetings this year (November and December),” said analysts at ING, in a note.

“Given the comments by Governor Andrew Bailey earlier this month suggesting the BoE could increase the pace of easing, markets may be tempted to price in some chance of a 50bp rate cut in November.”

traded 0.1% lower to 1.0882, ahead of Thursday’s policy-setting meeting by the European Central Bank.

The has already lowered rates twice this year and a cut to the 3.5% deposit rate this week is almost fully priced in by financial markets.

“EUR/USD is predominantly driven by external factors. The substantial drop in oil prices has narrowed the scope for a further drop based on market factors, but we continue to suspect that pre-US election positioning should favor a weaker EUR/USD,” said ING.

Yuan nurses weekly losses

fell slightly to 7.1179, with the yuan nursing losses this week as sentiment soured over the country’s plans for more stimulus.

China’s Ministry of Finance said it will enact a slew of fiscal measures to boost growth, but did not specify the timing or size of the planned measures, spurring uncertainty over its effectiveness.

rose 0.2% to 149.43, with the pair climbing closer to the 150 resistance level.

data due later this week is expected to offer more cues on the Bank of Japan’s plans to hike rates further.