France Narrows Down Candidates; Euro Jumps

by:
Portfolio Strategist, MainStay Investments
  • Following the first round of the French election, the euro jumped to a five-month high against the dollar in a relief rally.
  • Looking ahead, two candidates – Marine Le Pen and Emmanuel Macron – are set to face off in France’s presidential run-off on May 7. After which, the country will hold its parliamentary elections.
  • The Trump administration announced that it would levy a 20% import tax on Canadian lumber. Meanwhile, investors await highly anticipated details from the administration on its details for tax reform.

On Sunday, French voters went to the polls and narrowed the field down to two candidates – Marine Le Pen and Emmanuel Macron – both receiving roughly 23% of the vote. While it was only the first round of the French presidential election, investors were inspired by the details of the outcome. Macron’s strong showing helped prevent the negative scenario where two anti-establishment (anti-euro) candidates – Le Pen and Jean-Luc Melenchon – enter the run-off. Sunday’s election results also helped to validate the French polling process, which was in question, given election outcomes in the United Kingdom and the United States. Macron is now seen as the clear favorite and likely to pick up more support going into the May 7 voting. The euro moved sharply higher (1.3%) to its highest level against the dollar in five months. Other currencies also rallied against the dollar in a broad-based relief rally.

After a brief hiatus, the latest comments and policies from the Trump administration seem to be re-targeting unfair trade policies. The administration announced that it would levy a 20% import tax on Canadian soft lumber, causing the U.S. dollar to advance to a 14-month high versus the Canadian dollar. Trump also tweeted that he remains committed to building a border wall between the U.S. and Mexico. Protectionist policies, like these, risk sparking trade wars between countries, and would likely pose issues for companies’ profits. However, the currency market implications are less clear and also heavily dependent on tax reform. Investors await highly anticipated details from the administration on its tax reform.

Currency Movements Are Hard to Predict

EUR
 
JPY
 
INT’L
 
4|25 1.83% -2.40% -0.72%
4|18 1.18% 1.10% -1.20%
4|11 -0.65% 1.02% 0.17%
4|4 -1.29% 0.37% 0.83%
3|28 0.03% 0.53% -0.10%
3|21 1.95% 2.71% -1.86%
3|15 1.83% 0.87% -1.30%
3|7 -0.09% 1.07% 0.68%

Source: Bloomberg, 3/7/17 – 4/25/17. EUR/USD Spot Exchange Rate where the price of 1 euro is in U.S. dollars. The calculation is the one week percentage change in spot exchange rate where a negative value is the depreciation of the euro. JPY/USD Spot Exchange Rate–price of 1 Japanese yen in U.S. dollars. The calculation is the one week percentage change in spot exchange rate where a negative value is the depreciation of the JPY. The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. A negative value indicates a general depreciation of the dollar.

The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market.

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Robert Serenbetz

Portfolio Strategist, MainStay Investments

Robert Serenbetz is the Portfolio Strategist for Strategic Asset Allocation and Solutions Group (SAS). He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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