EUR/USD at 6-month high ahead of French vote
The Euro has strengthened to six-month highs against the dollar with a move to just below the pivotal 1.1000 level.
There has been increased confidence surrounding the Euro-zone economic outlook following upbeat PMI surveys with the composite index strengthening to 6-year highs.
The robust data has increased speculation that the ECB will move towards some removal of monetary policy accommodation before the end of 2017 which has underpinned the currency.
Political developments have also been important ahead of the French Presidential election second-round run-off on May 7th. Opinion polls continue to point to a comfortable victory for Macron over Le Pen. Macron was considered to have out-performed Le Pen in the TV debate, reinforcing expectations of a comfortable victory.
There are expectations that a Macron victory would ease underlying Euro-zone political stresses. The combination of increased confidence in the economic outlook and an easing of political fears has triggered a significant shift in sentiment and an increase in capital inflows which has supported the Euro.
Significantly, the German DAX index has strengthened to record highs before a slight correction.
Oil prices have also fallen sharply with Brent crude prices sliding to 5-month lows below $48.00 p/b. Weakness in commodity prices has undermined support for commodity prices and also tended to undermine the US dollar which has tended to support the Euro demand by default.
Confirmation of a Macron victory on Sunday would reinforce positive Euro sentiment, although this will inevitably be priced in to an important extent. An unexpected victory for the Le Pen would cause a major reversal with the Euro coming under very heavy selling pressure against all currencies.
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