It looks like investors are already bracing for the outcome of Sunday's first round of French parliamentary elections. The 10-year OAT-Bund sovereign yield spread is trading at a wide 82bp and EUR/USD is trading around 1.07, Global Head of Markets at ING Chris Turner notes.
Euro to go back under 1.07 ahead of the French elections
“The question for the market is whether a Le Pen government looks at the French bond market and starts dropping some of its plans for seemingly unfunded tax cuts. Our eurozone team suspects it will be too early for a new government to substantially water down its pre-election pledges and that it may well be tough road into September.”
“Ahead of the weekend election, today sees the European Central Bank (ECB) release its consumer inflation expectations for May. Three-year expectations currently sit at 2.4% and a drop under there would add to expectations that the ECB could cut again in September.
MEXICAN PESO LOOKING FOR DIRECTION AFTER BANXICO’S DOVISH HINTS
- The Mexican Peso recovers the losses made following the Banxico meeting on Thursday.
- A change in the distribution of voting and language of the statement suggests a higher change of interest-rate cuts in the future.
- USD/MXN trades in volatile ups and downs with no clear trend in the short-term.
The Mexican Peso (MXN) recovers most of the losses it endured after the Bank of Mexico (Banxico) meeting on Thursday. Banxico decided to leave interest rates unchanged at 11.00% and although the decision was widely expected, the change in the language of the statement and the division of voting were not.
These changes suggest Banxico is more likely to cut interest rates in the future than was previously supposed (dovishness). This, in turn, had a moderately weakening effect on the Mexican Peso, since lower interest rates are generally bearish for currencies because they attract lower foreign capital inflows.
At the time of writing, one US Dollar (USD) buys 18.36 Mexican Pesos, EUR/MXN is trading at 19.64, and GBP/MXN at 23.21.
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