Global Themes

The U.S. dollar was mixed Thursday, keeping on its back foot against Europe, though higher against Japan and Canada. The euro notched a three-week high, getting a boost from pre-election positioning ahead of France’s first round presidential vote on Sunday. The market, meanwhile, seems to be casting its ballot for a more moderate candidate to ultimately win the election following the round two vote on May 7. A win for centrist Emmanuel Macron or Republican Francois Fillon is anything but assured, however, given how polls suggest the race is too close to call. A potential nightmare scenario for global markets and for the euro would be if both of the extreme candidates – far-right Marine Le Pen and far-left Jean-Luc Melenchon – should advance to the May runoff. Ahead of U.S. data today, the dollar was lower against the euro and sterling, and higher against the yen and loonie.


The seemingly election-proof euro rose to three-week highs, benefiting from position squaring ahead of Sunday’s first round presidential vote in France, the bloc’s No. 2 economy. The euro has been among the least popular bets in recent months on expectations that the European Central Bank, which next meets on April 27, would trail the Federal Reserve in raising borrowing rates. The event risk posed by the French vote has been enough for many to reduce their bearish euro bets, or wagers on the single currency weakening in the months ahead. Between now and early next week, chances are good for the euro to experience unpredictable swings in volatility.


Sterling maintained the better part of a rally that catapulted it to six-month highs above 1.29. Sterling negativity abated in a material way after Britain announced this week that it would hold early elections in June, three years ahead of schedule. Prime Minister Theresa May hopes the June 8 election will allow her Conservatives to widen their narrow majority in Parliament and put her in a better position to negotiate a favorable Brexit deal with the EU. While reduced Brexit uncertainty should buoy the pound, fundamentals remain a source of weakness with the economy at risk of moderating in the months ahead.


Oil recovered from a sharp swoon the day before but not enough to lift the loonie above a five-week low. Oil finished Wednesday below $51 following a nearly 4 percent plunge in crude which left commodity-based currencies vulnerable. The loonie may struggle to attract buyers today – the eve of important Canadian data on inflation. Consumer prices are forecast to slow inside of the central bank’s 2 percent goal, an outcome that would reinforce a low rate outlook for longer, which is loonie-negative.


The dollar shrugged off another set of soft data that was largely offset by solid subcomponents. Weekly jobless claims rose more than expected, but the less volatile four-week average improved and remained consistent with underlying strength in the job market. The Philly Fed survey of Mid-Atlantic manufacturing growth moderated to a December 2016 low, but the sub-index on employment strengthened to a May 2011 high. The reports strengthened the notion that the slowdown in March hiring was an aberration and could be set to accelerate as soon as April.

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