The euro saw a quick spike midweek on the announcement from centrist politician François Bayrou that he will back Emmanuel Macron in an alliance. Polls had earlier indicated a small drop in support for Marine Le Pen, president of the National Front party, also. Euro reversed from the technically important 1.0500 area on Wednesday, as Bayrou said he would not run in the election but would back the overall favourite Macron. The move to reduce the different options for centre politic voters will be seen as a bigger challenge to Le Pen in the second round of the election, reducing her odds of a win and removing one potential risk for the euro. The first polls to be taken following this news will be interesting to see how much effect it has had with the people. Given that there was both the French news and the US Fed minutes this week, the rally in the euro-US dollar has been fairly modest.
Sterling
Following an agreement to settle with a US investigation into sales of mortgage-backed securities, it was a foregone conclusion that RBS would post a loss, having set aside £3.8 billion. The net loss was almost £7 billion, sharply higher from £2 billion last year although there were some hefty fines and restructuring charges. The operating profit actually came in at £3.67 billion, higher than the £3.1 billion that had been forecast. The bank recently scrapped plans to sell its Williams & Glyn subsidiary. RBS is looking to cut costs by £2 billion over the next four years.
US dollar
The dollar gave up ground against all the majors on Thursday as a relatively quiet session saw profit taking from dollar long position holders. Equity markets managed to make small gains but there are signs of momentum starting to fade there too. Sterling climbed against the dollar up to the mid-1.25’s, an all familiar level over the last few weeks. Euro also rallied back up to the important 1.0600 area. With no significant data yesterday and a continued absence of policy from the new US administration, it’s most likely moves will come from an ongoing closure of ‘stale’ positions. This is most likely to be negative, although downside should be moderate. While equity markets still managed to post yet another intra-day high and close, the gains are becoming quite minimal. The long position in global equities is probably the largest and most technically overbought market in the world with a lot of fiscal stimulus, yet to be confirmed, already priced in.