The Euro Rises; Macron’s Debate

A flurry of hawkish statements fueled hopes that the European Central Bank will raise interest rates soon, sending the euro to a one-week high on Thursday despite optimism that French President Emmanuel Macron would win reelection on Sunday.

The president of Germany’s Bundesbank, Joachim Nagel, has joined other policymakers in predicting that the ECB would hike interest rates at the start of the third quarter.

Outlook on Euro’s Movements

Kenneth Broux, an FX strategist at Societe Generale (OTC: SCGLY) in London, said, “The euro is all about the ECB drumbeat for a July move.” According to European political news, French President Emmanuel Macron cleared a crucial obstacle ahead of Sunday’s runoff election with a combative performance in a TV discussion against far-right contender Marine Le Pen. With the election just four days away, a snap survey for BFM TV indicated that 59 percent of viewers thought Macron was the most persuasive in the discussion, indicating that Macron’s 10-point advantage in the polls was not in jeopardy. “There didn’t seem to be anything from the discussion that should tip the election balances in either direction,” commented Jim Reid of Deutsche Bank.

The euro surged 0.7 percent versus the dollar in European morning trading to $1.0936, its best level since April 11. Sterling also slid to a 10-day low versus the rising euro. Investors remained focused on the Bank of England’s and other major central banks’ different future monetary policy courses. The euro’s gains were broad-based, with the currency gaining against the yen, Swiss franc, and Norwegian crown, among others. However, Antje Praefcke, an analyst at Commerzbank (ETR: CBKG), warned that if the US Federal Reserve raises interest rates faster than expected, the euro might experience negative pressure. In a letter, she added, “There is still a possibility that the euro may nosedive again.”