Euro fades in face of French election risks

07/02/2017 05:54 AST

The euro fell around half a percent on Monday as concerns over French politics ahead of presidential elections set for April and May drew investors' focus back to a year of political risks to Europe's established order.

The dollar was broadly steadier after a poor set of wages data on Friday quashed speculation of a near-term rise in US interest rates and sealed the currency's fourth straight weekly fall, its worst start to a year in three decades.

In a relatively slow start to the week, the Aussie dollar was the other biggest mover among the G10 group of major currencies, down almost half a percent after a weaker batch of retail sales numbers.

The euro ground lower in the European morning to trade as weak as $1.0734, compared with two month highs above $1.08 hit last week.

That came as bond market investors swapped French debt for the perceived safety of Germany and in spite of a strong batch of German industrial data which added to signs of an improving euro zone economy.

"I think there was just a load of position adjustment this morning," said Jane Foley, a strategist with Rabobank in London. "There has been a lot of talk about the strong data in Europe but the other backdrop is the politics. A few weeks ago, the market was convinced (conservative presidential candidate Francois) Fillon would win and that certainty has evaporated."

A source close to Fillon said he would launch a fightback later on Monday against the fake-job scandal that has threatened to engulf his campaign. Polls show the 62 year-old former prime minister has lost his status as favourite to win the presidency to centrist Emmanuel Macron, and that far-right leader Marine Le Pen - the chief risk for markets - has also gained ground.

PRESSURES ON DOLLAR

Equity markets, and the overall strength of US economic data, continue to back the bullish dollar calls that dominated at the end of last year.

But a lack of detail on expected pro-dollar tax and spending initiatives, combined with concern over the Trump White House's attitude to the dollar and global trade and security, has kept the currency retreating.

"I'd like to hope that we naturally go back to buying the dollar, that seems the logical argument underneath it all," said Richard Benson, co-head of portfolio management with currency fund Millennium Global in London.

"At some point, equities in the US should drag yields higher. The market is really just looking for another story."

Signs of more inflation and better growth in Europe have helped to cool any further selling of the euro, although against that there are the worries of populist challenges in a series of elections this year.

On Sunday Le Pen began her bid to be elected president in May, promising she alone could protect the French against Islamist militants and globalisation.

German industrial orders saw the biggest monthly increase in around 2 1/2 years in December, data on Monday showed.

Speculators trimmed their bullish dollar bets for a fourth straight week through Jan. 31, with net long positions falling to their lowest since late October, according to data from the Commodity Futures Trading Commission released on Friday and calculations by Reuters.

Business Recorder