Pound and dollar benefitting from euro weakness – with France struggles spooking markets
By James Sillars, business reporter
Two issues are dominating the behaviour of investors at the moment: US inflation and the snap parliamentary election in France.
Uncertainty over the two has been driving a topsy-turvy performance on stock markets as any scrap of evidence over the potential timing of a US interest rate cut is seized upon.
A sticky inflation picture across the pond – as we have witnessed here – has pushed back Federal Reserve and therefore market expectations for a reduction in borrowing costs.
The next big number awaited is the latest personal consumption expenditures price index, a closely watched inflation indicator at the US central bank.
A weaker than expected number could see a boost for shares globally after a volatile few weeks.
Following a 0.4% decline yesterday, the FTSE 100 opened 0.4% up at 8,285.
Among the wider shares doing well were those of 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 beat market expectations.
The pound and dollar have benefitted amid struggles for the euro over the past couple of weeks.
Much of that has been down to election speculation in France where Marine Le Pen’s National Rally (RN) is leading first-round polling.
The election was called by President Emmanuel Macron after RN’s strong gains in the recent European elections, sparking a renewed market focus on the French economy and the potential knock-on effects for the euro area.
France has a debt to GDP ratio of 110%, meaning its debt is more than the value of its annual output.
There is a budget deficit of 5%. EU rules allow for just 3%.
The market’s worry, according to analysts, is that if the far-right RN were to win big in the first round, then voters may take a tactical turn to the left in the second.
It is a concern for France and the wider euro, they said, because a left-wing alliance influence in government would seek even greater public spending commitments than RN has made.
French government borrowing costs have soared since the election announcement.
Earlier this month, the risk premium France pays for its debt on top of Germany’s neared levels last seen in 2012.
