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Yesterday saw the euro strengthen against a basket of currencies, including its two main counterparts, the pound and US dollar. GBP/EUR dropped back into the low 1.17’s and EUR/USD is pushing towards 1.10 as you can see from the graphs below.
GBP/EUR exchange rate graph
EUR/USD exchange rate graph
As the graphs demonstrate the move was caused by a bout of euro strength. The sudden strengthening came as a result of France’s newly elected President Emmanuel Macron appointing his Prime Minister, Edouard Philippe. Philippe is a centre-right Republican and not from Macron’s new Centrist party. Macron’s choice is seen as an attempt to draw in key figures from both the left and right of French politics. President Macron faces crucial parliamentary elections next month and may need the support of the centre right to push through his planned economic reforms. His new party, La République en Marche (Republic on the move), announced last week a list of 428 candidates for June’s elections. Macron’s fresh approach to French politics is what has arguably won him many plaudits around France. The likelihood of Macron now being able to form a new party, and gain enough backing to push through his reforms looks more and more realistic, as a result, much of the uncertainty we saw in the run up to the French elections is beginning to dissipate which in turn allows the euro to regain some of the ground it previously relinquished.
For euro sellers it is a welcome break from several weeks of euro weakness and a drop of nearly three cents in a week should not be ignored. However, as trader’s attention changes to the upcoming UK elections we could well see a similar fate for the pound in a few weeks’ time. We have already seen sterling come off from the recent highs and maybe a portion of the move can be attributed to the upcoming elections. Should Mrs May win by the huge margin many are anticipating we could well see a portion of the pounds recent loses put back on.
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This morning the UK releases its latest inflation figures which are expected to show an increase from 2.3% to 2.6% a huge jump which if the predicted figure is realised will surely result in more calls for the Bank of England to raise interest rates from their records lows. Later today, we have the latest US building permits which will be released at 13:30. Later tonight we have the latest GDT (Global Dairy Trade) and PPI (Producer Price Index) figures from New Zealand.
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