An overnight descent took the euro to late January lows against the dollar, a decline spurred by rising political risk ahead of France’s spring vote for president. One of the presidential candidates, Marine Le Pen of the far-right, has ambitions of bringing back the franc and taking the nation, the bloc’s second biggest, out of both the 19-nation eurozone and the wider 28-country EU. Meanwhile, a jobs scandal has engulfed recent front-runner François Fillon of the centre-right party. The third candidate, centrist Emmanuel Macron, has denied rumours of having an extramarital affair. The uncertain status of the candidates and what policies the winner would ultimately pursue has for now put a lid on euro strength and left it vulnerable to revisiting major levels of support.

GBP

Sterling rebounded from a fall this week to two-week lows below 1.24. The pound bounced after a UK Brexit minister on Tuesday suggested that Parliament would have a ‘meaningful’ say in the nation’s game plan to vacate the EU. The more say Parliament gets, the more inclined the government might be to soften its hard-line stance on a clean break from the EU, a scenario that could potentially play out better for the British economy. Going forward, the pound would be vulnerable to any signs of a crack forming in the nation’s economic foundation. Yesterday saw data on factory growth and trade, while looming next week are readings on inflation, unemployment and consumer spending.

USD

The dollar swung between small gains and losses on Wednesday with a decline in US Treasury yields leaving the greenback vulnerable. The yield on the benchmark 10-year bond eased to 2.36 per cent towards the bottom of its range, reflecting investor frustration in the Trump administration offering clarity on its stimulus agenda, and the perception the Federal Reserve does not have a first quarter rate hike on the table. Still, America’s solid economic fundamentals combined with rising political uncertainty in Europe should help to limit dollar losses. Next week looms critically for the US rate debate when the Fed chair on February 14 and 15 testifies before congressional panels on the outlook for the economy and monetary policy.

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