Political Issues Pull Euro Lower

Le Pen ahead as rivals face up to scandals.

It was only a matter of time before a sexual element was introduced into the French election campaign! It is almost a badge of honour in French politics to be accused of extramarital relations. Emmanuel Macron was forced, yesterday, to deny having an affair yesterday.

Francois Fillon is still facing criticism over his alleged use of public funds to pay his wife for a job she never actually did.

Marine le pen the National Front Candidate has, so far, been able to rise above and scandals and is leading in opinion polls. Ms. Le Pen plans to take France out of the Euro and hold a Brexit style referendum to determine France’s continued membership of the EU.

The EU could not stand another departure and so this election is taking on even more significance.

Geert Wilders the populist candidate in the Dutch election was interviewed by the U.K’s Sky News on Monday. He stated his intention, if elected, to take the Dutch out of the EU. He said that democracy needs a nation state and what started as an economic union has turned into a political experiment. He believes that the EU is turning Europe into a “Federal State” which he feels harms the democratic rights of his countrymen.

The Dutch election is on 15th March precedes the French vote and a win or a good showing for Wilders will give a massive boost to Le Pen’s campaign.

Meanwhile Germany looks on serenely but there must be concern with their own election to be held later in the year.

Martin Schultz a former EU President is likely to be Angela Merkel’s chief rival as she stands for a fourth term. She must feel that there is a “wind of change” blowing through Europe but at least she is able to point to Germany’s economic record in her defence.

The Euro isn’t yet quite fighting for its life and the effect on it in the FX market has, so far, been limited. Mixed signals are affecting not just the Euro but most major currencies currently.

In the U.K. the first MPC member to break ranks spoke yesterday about the possibility of a rate hike. Kristin Forbes called for a rate hike soon should inflation accelerate and growth remains strong.

It was announced to Parliament that MP’s will get to vote on the final settlement that is reached with the EU but the “no deal is better than a bad deal” mantra remains. The Government is under greater pressure to give Members of Parliament a greater say in the negotiations and this gave a boost to the pound yesterday. It is counter-intuitive that the pound rallies on less clarity for Brexit but this reflects the markets continued uncertainty of whether Brexit will be a good thing, long term, for the U.K.

The U.S. Trade data released yesterday was close to market estimated an -43.4bn. President Bush meets Japanese Prime Minister Abe later today and the real discussion is sure to take place behind closed doors. Their press conference will touch on trade and defence issues but last week’s criticism over currency manipulation will be a rant for another day!