The euro held steady below a three-week high against the dollar on Friday, as investors awaited this weekend’s first round of voting in France’s presidential election. The euro was flat at $1.0718, after having risen to as high as $1.0778 on Thursday, its strongest since late March.
Security concerns have taken centre stage in the run-up to Sunday’s vote. A French policeman was shot dead and two others were wounded in central Paris on Thursday night in an attack claimed by the Islamic State militant group.
Polls have forecast that the most likely outcome of Sunday’s first round of voting is centrist Emmanuel Macron and far-right candidate Marine Le Pen — who wants to take France out of the European Union — facing off in the May 7 second round. Should Macron rank first or second in Sunday’s election, he is seen easily winning the runoff vote on May 7.
Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo expected limited action in the euro ahead of the vote, with traders largely just adjusting positions. The size of the vote for Le Pen could be key to the euro’s performance when markets reopen after the vote.
“If Le Pen were to get past the first round with a wide lead, the (market) impact could be large,” Yamamoto said.
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After surprises in last year’s U.S. election and the UK Brexit referendum, market participants are worried about the risk of being caught wrong-footed again. “I think the consensus is that France in the end will choose some one other than Le Pen, somebody more moderate,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
“But you can’t say that for sure, after what happened last year,” Murata said.
The dollar eased 0.1 percent to 109.23 yen, giving up some gains after rising 0.4 percent on Thursday helped by comments from U.S. Treasury Secretary Steven Mnuchin. Mnuchin said the Trump administration will unveil a tax reform plan very soon, easing some of the doubts over whether President Donald Trump will be able to pass pro-growth tax reforms in the near term.
Sterling eased 0.1 percent to $1.2798 but was up nearly 2.2 percent for the week, having gained a lift after British Prime Minister Theresa May surprised markets on Tuesday by calling for an early general election on June 8.
Investors appear to be judging that the prospect of a stronger mandate for May in parliament would potentially give her more chance of making the major compromises with the European Union necessary to smooth Britain’s exit from the bloc and limit any damage to the UK economy. (Reporting by Masayuki Kitano; Editing by Simon Cameron-Moore)
(Reporting by Masayuki Kitano; Editing by Simon Cameron-Moore)