The euro rallied on Sunday after the French presidential election, which showed Emmanuel Lacron and Marine Le Pen advancing to the second round. EUR/USD has paused in the Monday session, as the pair trades quietly at 1.0870. On Sunday, the euro touched a high of 1.0934, its highest level since early November. On the release front, German Ifo Business Climate improved to 112.9, beating the forecast of 112.4 points. In the US, there are no economic releases on the schedule. On Tuesday, the US releases CB Consumer Confidence and New Home Sales.
Almost 40 million French voters went to the polls on Sunday, and for the markets, expected news was good news indeed. The first round of the presidential election featured 11 candidates, and the vote whittled the field down to just 2 candidates – centrist Emmanuel Lacron and far-right Marie Le Pen. Lacron garnered 24% of the vote and Le Pen 22%, which was what most polls leading up to the election predicted. The runoff vote takes place on May 7 and French voters will have a clear choice between Lacron, who served as an economic minister, and Le Pen, who is running on an anti-EU platform. The markets breathed a sigh of relief, as the nightmarish scenario of a runoff between Le Pen and far-Left candidate Jean-Luc Mélenchon was averted. We can expect daily opinion polls to be market-movers, as was the case before the first round. Lacron goes into next week’s vote as a heavy favorite, and two candidates in the first round have thrown their support behind Lacron – center right François Fillon and Socialist Benoit Hamon.
What’s next for Janet Yellen and Co.? The Federal Reserve has broadly hinted that it will gradually raise rates in 2017, but it’s unclear how many times Janet Yellen will press the rate trigger. Most analysts are expecting two more moves this year, but there have been calls from some Fed policymakers for three more hikes. However, soft retail sales and CPI numbers in March have made the Fed more dovish, and on Tuesday, the Atlanta and New York Federal Reserve lowered their outlook for US economic growth for the first quarter. The Fed can point to a labor market that is close to capacity as well as strong consumer confidence, but surprisingly, this has not translated into stronger consumer spending, a key driver of economic growth. Will the Fed raise rates in June? The CME Group shows the odds of a June hike have dropped to 50%, compared to 64% earlier in April.
