Political risks weigh on
euro, yen gains
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[February 08, 2017]
By Patrick Graham
LONDON
(Reuters) - The euro fell another third of a percent against the dollar
on Wednesday, as concerns around a resurgence in political risk to the
single currency project drove its worst run of daily losses in almost
two months.
The yen, however, was up another quarter of a percent at 112.12 per
dollar, a move towards the perceived security of Japan pointing to the
growth in concerns around global political risks and the Trump
presidency that has dominated recent days.
The dollar was wobbling at the start of this week, a low wages number
having quashed bets on a rise in U.S. interest rates in March and cooled
expectations for the scale of monetary tightening this year.
Concerns over the impact on the world economy of President Trump's
protectionism and immigration policy have also weighed on the greenback,
along with the new administration's hints that it would prefer a weaker
dollar.
Over the last two days, however, that has all played second fiddle to
France's presidential election race and question marks over further
international financial support for Greece. The dollar index had its
best day in a month on Tuesday and it was up another 0.3 percent in
early deals in Europe on Wednesday.
"The French political noise has brought the euro down and that has given
the dollar a reprieve," said Gavin Friend, a strategist with National
Australia Bank in London.
"Markets know that if Trump was to come out and start talking about tax
reform and infrastructure spending, the dollar would go up. The dollar
rose a long way at the end of last year, it has come back, now we are
sitting around waiting for the next steer."
Having fallen as low as $1.0643 in Asian time, the euro traded 0.2
percent lower on the day at $1.0660 <EUR=> by 0850 GMT.
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A man counts U.S
dollars and Euros at a money exchange office in central Cairo,
Egypt, December 27, 2016. REUTERS/Mohamed Abd El Ghany
Uncertainty about the two rounds of the French presidential election on April 23
and May 7 drove the premium that investors demand for holding French over German
government debt to its highest in more than four years.
Centrist Emmanuel Macron was forced on Tuesday to deny an extramarital affair
and conservative Francois Fillon pressed on with efforts to salvage his
reputation after accusations that he used taxpayers' money to pay his wife for
work that she may not have done.
Opinion polls show Macron slightly ahead of Fillon in the first round, but
behind far-right National Front leader Marine Le Pen, who has vowed to pull
France out of the euro zone and hold a vote on its membership in the European
Union.
Against the yen, the euro lost half a percent to 119.48, its lowest since Dec.
5.
Both the dollar and yen have drawn some support from a return of nerves around
China's yuan following the new year holiday. Beijing's foreign exchange reserves
unexpectedly fell below the $3-trillion level last month for the first time in
nearly six years.
"After the difficult first few weeks of the year, we see more strength for the
dollar coming through," said Alessio de Longis, a portfolio manager and macro
strategist with Oppenheimer Funds in New York.
"My goal would still be the euro approaching parity over the course of this
year."
(Writing by Patrick Graham; Editing by Andrew Heavens)
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