Euro shoots up against US$, Sing$ as 'Frexit' fears ease

The German Central Bank (Bundesbank) presents the new 50 euro banknote at its headquarters in Frankfurt, Germany, on March 16, 2017.
The German Central Bank (Bundesbank) presents the new 50 euro banknote at its headquarters in Frankfurt, Germany, on March 16, 2017.PHOTO: REUTERS

The euro has shot to its highest against both the United States dollar and Singapore dollar in nearly a month after Sunday's French presidential election allayed some fears of "Frexit".

The pro-European Emmanuel Macron will go into the final vote on May 7 as a favourite against far-right candidate Marine Le Pen.

Global markets read the vote as a sign that France would be less likely to break away from the European Union.

That, in turn, sent the euro up 1.47 per cent against the greenback and 1.13 per cent against the Singdollar - its highest level since March 27.

The Singdollar was trading at 1.5122 to the euro last night.

France's benchmark CAC 40 also surged, rising over 4 per cent at the opening yesterday, while the more regional FTSEurofirst 300 Index put on over 2 per cent to reach a new 12-month high.

Analysts now see a more stable future for the EU, under scrutiny since Brexit amid the rise of nationalist politics in the region.

Bank of Singapore currency strategist Sim Moh Siong expects the euro-Singdollar pairing to hit 1.52 within six months, and 1.54 within a year. "The worry over the EU's future will likely return when Italy holds its election but, for now, the lower risk of Frexit allows the market to focus more on Europe's fundamentals, which have been improving on several fronts," he told The Straits Times. The Italian election date is not firmed up yet, but must take place by May next year.

Data out earlier this month showed the euro zone's unemployment rate of 9.5 per cent was its lowest since May 2009, while the flash Markit purchasing managers' index for April was the highest in six years.

Investment giant BlackRock agreed that Mr Macron's election success is a "positive surprise" in the near term. "This result should lead to a material reduction in perceived political risk in Europe… We are positive on European shares," it said in a note. "(Mr Macron) started his career as a civil servant before becoming an investment banker and serving as President Francois Hollande's economics minister. His platform has centred on renovating France's economy for the 21st century while openly embracing the European Union."

Despite the positive signs, the European Central Bank (ECB) is expected to keep interest rate policies unchanged at its meeting on Thursday. "Doubts on whether inflation will rise back to a 2 per cent target and benign core readings will prompt the ECB to sit on its hands," DBS Bank said yesterday.

A version of this article appeared in the print edition of The Straits Times on April 25, 2017, with the headline 'Euro shoots up against US$, Sing$ as 'Frexit' fears ease'. Print Edition | Subscribe