The euro and French stock markets moved lower this week as optimism faded after Sunday’s French election victory by Emmanuel Macron. Financial markets attention turned to economic growth and the challenges of implementing far reaching reforms in the French economy.
The EURUSD initially rallied to 1.1020 at the weekly open, spurred on by relief that Marine Le Pen had been defeated, with Emmanuel Macron getting over 65% of French votes in Sunday’s final round of voting. The EURUSD started to declined towards 1.0930 at the Monday close, and by Thursday the euro had set a two week low of 1.0840.
France’s benchmark equity index the CAC 40 had gained nearly 6% in the previous two weeks, and on Monday the CAC 40 retreated 0.9% to 5,385. As the week progressed the index continued the bearish decline towards a weekly low of 5,355.
Financial markets have started to price in potential risks to Emmanuel Macron’s En Marche party, which is still without any other members, in just over a month his fledgling movement has to find and endorse 577 new candidates and hope French voters are prepared to take a leap of faith and back them.
If the En March party fails to find the support they need, the new President is faced with the prospect of finding a way to govern France with the support of either of the two more established parties, the Republicans or the Socialists.
The market will turn it’s attention to the German economy next, when voters will go to the polls on September 24, in a Federal Election that will see Angela Merkel battle for a fourth term as the leader of Germany.
Merkel’s Christian Democrat party has already scored a significant victory in a regional election on May 7, giving her conservative party a boost of confidence ahead of the national vote.
The New Zealand dollar moved sharply lower after the Reserve Bank of New Zealand surprised investors by keeping its interest rate unchanged, despite recent economic data showing a rise in inflation and a strengthening jobs market.
The kiwi fell to 0.6834 cents against the US dollar, falling from 0.6934 cents. The RBNZ governor Graeme Wheeler kept the official cash rate at 1.75% as expected and expressed his view that the current interest rate should stay the same until 2019.
As expected, the Bank of England kept its interest rate at a record low of 0.25% and maintained its asset purchase programme at GBP 435 billion. The pound slipped lower following the bank’s decision and their monthly policy statement where they lowered their growth forecast for 2017, noting that growing inflationary pressures and stagnant wage growth would start to weigh on the domestic economy.
The GBPUSD pair fell to a weekly low of 1.2850, falling from 1.2924 as the Bank of England acknowledged the UK economy was starting to slow down.