A rising tide lifts all boats
As the Dollar continues to perform lacklustre oscillations, key pairs remain rangebound. The trend so far this week has been for a mildly weaker Dollar. Given that the Dollar is considered the primary counterparty for most currencies, this creates a rising tide effect across the rest of the market. However, scratch beneath the surface of many apparent moves higher in FX and we see little more fundamental appreciation than that created by a receding Dollar.
Take the Euro for example, French political risk has taken a leg lower with the reinstatement of outgoing Prime Minister Lecornu. Having been out of office for just four days the Prime Minister who had tendered his resignation fearing the loss of a no confidence vote was reinstated by President Macron. Today, the French government faces that same threat: a no confidence vote. This time around, following some last-minute concessions by the ruling coalition and President, it looks like Lecornu might just survive it.
Alongside a EURUSD that has rallied a cent or so since the re-establishment of a French government you would be forgiven for mistaking an apparent restoration of partial political stability as the driver of Euro strength. So far, looking at the Euro from other angles, there is no meaningful appreciation in the currency other than that afforded to it by a receding Dollar. Measured against the Pound, for example, shows a reversal in the Euro’s strength away from its July, August and October highs.
Discussion and Analysis by Charles Porter
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