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Pound and dollar benefiting from euro weakness – with France’s difficulties spooking markets
Per James Sillarsbusiness reporter
Two issues are dominating investor behavior at the moment: inflation in the US and early parliamentary elections in France.
Uncertainty about both has led to topsy-turvy performance in stock markets as every shred of evidence about the potential timing of a US interest rate cut is seized upon.
A sticky inflationary picture across the pond – as we witnessed here – has pushed back the Federal Reserve and therefore market expectations for a reduction in borrowing costs.
The next big number expected is the latest personal consumption expenditures price index, an inflation indicator closely watched by the U.S. central bank.
A weaker-than-expected number could provide a boost to stocks around the world after a volatile few weeks.
After falling 0.4% yesterday, the FTSE 100 opened 0.4% lower at 8,285.
Among the broader stocks that performed well were AO World, up more than 3%.
The online electricals retailer raised growth targets for its current financial year, after profits over the 12 months to the end of March exceeded market expectations.
The pound and dollar have benefited from fights over the euro in recent weeks.
Much of this is due to electoral speculation in France, where Marine Le Pen’s National Rally (RN) is leading the vote in the first round.
The election was called by President Emmanuel Macron following the RN’s strong gains in the recent European elections, generating renewed market focus on the French economy and the potential spillover effects for the eurozone.
France has a debt-to-GDP ratio of 110%, which means that its debt is greater than the value of its annual production.
There is a budget deficit of 5%. EU rules only allow 3%.
The market’s concern, according to analysts, is that if the extreme right of RN won big in the first round, voters could take a tactical turn to the left in the second.
It is a concern for France and the euro in general, they said, because a left-wing alliance influence in government would seek even larger public spending commitments than those made by the RN.
The French government’s financing costs have soared since the elections were announced.
Earlier this month, the risk premium France pays on its debt surpassed levels close to Germany, last seen in 2012.