Wednesday, May 25

Euro feels weight of French election concerns, more Russia sanctions

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LONDON — The euro weakened on Tuesday with the Swiss franc and the Swedish crown the winners as French election worries and the chance of more sanctions against Russia unnerved investors.

French financial markets acknowledged the possibility of far-right candidate Marine Le Pen beating President Emmanuel Macron in this month’s elections, with sharp losses on Paris blue chip index and government bonds.

Concerns about the outcome of the French elections have prompted traders in the euro to slowly ramp up buying put options around the $1.07-$1.09 levels for end April expiry, Refinitiv data shows.

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Against the US dollar, the single currency briefly fell to more than a one-week low of $1.0956. The euro reached a one-month high of $1.1185 just days earlier amid increased optimism over an end to the Ukraine conflict.

“The single currency continues to underperform the broad G10 space as growth risks persist from events in Eastern Europe,” said Simon Harvey, head of FX analysis at Monex Europe.

Expected price swings for the euro, or implied volatility climbed to three-week highs as traders braced for more sanctions.

“Sentiment around the single currency is becoming more bearish by the day,” Harvey said.

The euro’s biggest losses on Tuesday were against the Swedish crown and Swiss franc, with falls of 0.4% and 0.2% respectively.

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The United States and European countries pledged on Monday to punish Moscow over civilian killings in northern Ukraine. The Kremlin denied accusations related to the murder of civilians.

New sanctions could include restrictions on the billions of dollars in energy that Europe imports from Russia.

Elsewhere, the Australian dollar jumped to a nine-month high after the country’s central bank signaled higher interest rates were closer.

The Aussie surged 1.23% to $0.7639, its strongest since June 14, after the Reserve Bank of Australia (RBA) dropped its pledge to be “patient” on tightening policy, while holding the key rate at a record low for now, as was widely expected.

The dollar index eased 0.07% to 98.902 from a one-week high of 99.083 reached overnight.

The greenback was flat against the yen at 122.73 yen , broadly tracking moves in long-term US Treasury yields, as it continued to consolidate around 122.5 after retreating from a multi-year high of 125.105 on March 28.

(Reporting by Saikat Chatterjee and Julien Ponthus; Editing by Jacqueline Wong, Mark Potter and Alexander Smith)