The euro is trading at multi-month highs against major currencies on expectations that centrist Emmanuel Macron will win France’s presidential election which will be decided on Sunday.
The euro is hovering just below $US1.10, its highest since early November, while the Aussie dollar has slipped to 67.22 euro cents, the lowest in eight months against the common currency.
The euro has climbed 5 per cent since Macron emerged as the frontrunner early this year and rose further after Macron was seen as the winner of Wednesday’s TV debate with far-right candidate Marine Le Pen.
Opinion polls are predicting a 60-40 victory for Macron and while some unease around the reliability of polls remains following their inability to predict either Brexit or a Trump victory, Macron’s lead has remained surprisingly stale over the past weeks.
“It’s the high certainty that Macron will actually win the election,” Sebastien Galy, currency strategist at Deutsche Bank, said of the euro’s gains.
The yield gap between German and French government bonds, another measure of the risk of a break up, has also shrunk dramatically to its lowest in six months.
The euro was also supported by expectations that the European Central Bank could take a more hawkish tone on its monetary policy at next month’s meeting.
“Given the strength in European data to date and the abating of geopolitical risk, there is continued speculation that the ECB may communicate a change in its policy guidance at its upcoming June meeting,” said NAB economist Tapas Strickland.
ECB board member Praet played into this tone overnight stating “this is a judgement which will be very much data-dependent”.
Still, the mood remains very much in favour of the common currency and OANDA senior trader Stephen Innes predicts further gains.
“With equity inflow already surging into EU capital markets, the Euro should pop higher next week,” he said.
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