Euro’s decline begins to lose momentum
The euro was heading for a fifth consecutive weekly decline on Friday. However, its selling momentum showed signs of slowing as France’s bond market stabilised and lower US Treasury yields reduced some support for the dollar.
The common currency had reached a 17-month low of $1.1161 on Monday. Investors were concerned about France’s record-high debt and the political difficulty of implementing budget cuts. The strength of the US economy also supported the dollar.
The euro subsequently recovered to $1.1226. It was down 0.1% for the week, although it had fallen more than 3% against the dollar over five weeks.
French politics remains a source of uncertainty
The euro’s outlook remains closely linked to developments in France. Far-right presidential candidate Marine Le Pen presented plans to reduce the budget deficit during the week. Markets viewed the proposal as reassuring, given that her hard-left rival, Jean-Luc Melenchon, had called for the central bank to cancel government debt.
Political tensions continued on Thursday. French students blockaded high schools and marched through cities in protests over education conditions.
Macquarie strategists Thierry Wizman and Gareth Berry said France’s bond selloff and social unrest were operating in a feedback loop. They warned that an escalation in street protests could push bond-yield spreads higher.
Matt Simpson, senior analyst at StoneX in Brisbane, said currency moves appeared stretched. He cautioned investors to be careful at current euro levels as the currency’s bearish momentum weakened.
Other major currencies show mixed moves
The dollar edged lower during the Asian session. US yields were heading for their largest weekly decline in about three months, slowing the dollar’s recent gains.
The Australian dollar rose 0.2% to $0.6975. Sterling gained 0.1% to $1.3243. The New Zealand dollar rose about 0.2% to $0.5614 but remained flat for the week.
The New Zealand dollar faced the possibility of a seventh consecutive weekly decline. Relatively low domestic interest rates could extend its losing streak, which would be its longest in more than four years.
The yen was heading for a fourth consecutive weekly decline. However, its moves during the previous three weeks had been small, and it had stabilised around 158 yen per dollar.
Vishnu Varathan, head of Asia-Pacific macro strategy at Mizuho Securities in Singapore, said the dollar held a precarious position because the euro and yen were weak.
