The month of April was packed with major market-moving events. Politics remain in the focus during the month, with the French presidential elections and UK’s snap election announcement giving backwind to the euro and sterling. The ECB made no changes to its key interest rates or bond buying programme at the yesterday’s meeting. Let’s take a look at these events.
French Presidential Election
The French presidential elections set the tone for EUR trades in the coming weeks. One thing is sure – an eventual victory of Le Pen would hit the euro hard. With Le Pen building her campaign on an anti-European tone, threatening that France would leave the EU and Eurozone in case she becomes the next French president, the euro is put under enormous pressure not seen since the sovereign debt crisis in Europe.
The first round is already over, with the independent Macron and Le Pen going to the second round of elections on May 7th. Last Sunday, Macron gained 23.7 percent of vote, while Le Pen got 21.7 percent.
As the exit polls indicated a victory for centrist Macron, the euro hit a five month high against the dollar when the markets opened Sunday evening in Asia. The currency gained 2 percent on that day, hitting $1.0939 in early trading. EUR/GBP also rose 1.5% to .85 pence per euro. The market is confident that Macron will easily win against Le Pen on May 7th, with voices took over from Mr Melenchon as leftwing voters are committed to prevent Le Pen from gaining power.
UK’s Snap Election
British Prime Minister, Theresa May, surprised the markets with an early vote announcement on 18th of April. In the statement, May said that her government will start with the process for a snap election on June 8th.
The announcement of an early vote shocked the markets. The British currency gained more than 2% against the dollar, hitting $1.29 at the close of the day. This is a 6-month high sterling/dollar exchange rate. But the pound is still relatively weak compared to levels before the Brexit vote. Sterling is still down 11% against the dollar in the last 12 months.
The pound also gained 3% against the Canadian and Australian dollar, and Mexican and Argentine peso.
ECB monetary policy meeting
EUR/USD touched 1.0850 by the end of the trading day, reflecting market concerns over dovish monetary policy in the Eurozone. Market participants had expected a more hawkish response from the ECB, particularly after the results of the first round French election victory suggested a win for Emmanuel Macron.
What to look for in the coming month
May 5: Non-Farm Employment Change, USD
May 7: French Presidential Election, EUR
May 11: Monetary Policy Summary, GBP
May 24: BOC Rate Statement, CAD