The U.S. dollar has lost drastically against the majority of its rivals as a boost in confidence has diminished demand for the perceived safety of the greenback. The centrist French candidate looks poised to win the final round of the French election, sending stocks higher across the globe. The French CAC Index rose over 4% and the German DAX added 3.0%. The yield between French and German bonds narrowed to the tightest since January, showing relief in markets.
While events abroad will dominate the headlines today, there are a number of developments in the U.S. this week that will affect the greenback. President Trump has said that he will announce his much-anticipated tax plan this week. It is unknown whether the President can find support for his plan after the failed repeal of Obamacare. Therefore, we expect volatility to spike higher. In addition, Congress must cobble together a funding deal or the federal government will shut down. The deadline is Friday.
Tomorrow, new home sales and consumer confidence will cross the wires, while Trump’s tax plan is expected on Wednesday. Durable goods and pending home sales are set for Thursday morning, in conjunction with the European Central Bank decision. Gross domestic product and consumer sentiment will round out the week on Friday.
The Euro jumped to a five-month high against the U.S. dollar and rallied across the board as the centrist candidate Emanuel Macron advanced to the final round of the French presidential election. Markets were skeptical that Macron could advance. Macron is viewed as the best candidate to beat far-right nationalist Marine Le Pen. Le Pen has argued that France should leave the European Union and the Euro currency. Conservative Francois Fillon, who came in third, has offered his support to Macron. Polls have shown that Macron is nearly a 20-point favorite in the final round of the presidential elections on May 7th. There will be a nationally televised debate on May 3rd.
The relief rally for the Euro may only be temporary in the larger scope of the year. The U.S. Fed is still on track to raise interest rates again this year while the European central bank has maintained its accommodative approach. The ECB will meet on Thursday but is unlikely to change policy.
The Japanese yen sold-off in a big way overnight as markets breathed a sigh of relief following the results of the French election. The yen fell over a percent against the U.S. dollar and suffered deeper losses versus its European counterparts. The yen may have fallen even farther if it wasn’t for a sharp-sell-off of Chinese equities. China’s Shanghai Composite Index fell nearly 1.5%, its biggest one-day loss of the year.