Euro Extends Decline as European Elections Fuel EU Exit Anxiety

  • President Trump will meet Japan PM Abe on Friday in Washington
  • Kiwi jumps to three-month high as inflation expectations rise

Goldman's Bell Sees Market Volatility Beyond VIX

The euro fell for a second day as forthcoming elections raised questions over the future of the European Union. New Zealand’s dollar jumped after inflation expectations advanced to the highest since 2015.

The euro fell to a two-month low against the yen amid concern of mounting protectionism seen among leaders contesting in major European elections in the next few months, a trader said. Benchmark 10-year Treasury yields dropped to a two-week low as U.S. President Donald Trump prepares to meet Japanese Prime Minister Shinzo Abe on Friday, after the U.S. leader’s recent trade and immigration policies stoked concern about protectionism.

The market is driven by the unwinding of Trumpflation trade and pricing in of geopolitical risks mainly from Europe as elections draw near, said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland.

Lech Walesa, whose mass movement Solidarity helped tear down the Iron Curtain in 1989, said a win by Marine Le Pen in French presidential elections coupled with the loss of Chancellor Angela Merkel in the German parliamentary ballot this year would pull apart the European Union.

The Netherlands will hold a general election in March, the French are due to choose a new president in April, and Germany is scheduled to have a federal election in September. Nationalists including French National Front leader Le Pen and Geert Wilders of the Dutch Freedom Party are seeking to build on Trump’s surprise victory last November. Le Pen will take France out of the European Union if she wins, her chief economic adviser said.

  • EUR/USD drops 0.5% to 1.0699, and reached 1-week low of 1.0691; macro-related selling of EUR/JPY seen a few times today, according to an Asia-based FX trader
    • EUR/JPY dips 0.4% to 119.64. Initial sellers entered market near 120.00, fresh offers placed there now, trader says
    • Early European names have sold into Asia-based banks
  • 10-year UST yield falls 2bps to 2.39% after reaching 2.38%, lowest since Jan. 23
  • USD/JPY advanced 0.1% to 111.82, after dropping to 111.60, lowest level since Nov. 28
    • Philadelphia Fed President Patrick Harker said Monday the U.S. central bank’s March meeting is a live option for a rate increase if job market momentum holds up, growth continues and wages rise
    • The Fed needs to work hard to avoid surprising markets if it wants to raise rates next month as investors have low expectations of such a move, says Andrew Balls, CIO of global fixed income at Pimco
  • NZD/USD rises 0.6% to 0.7361; 2-year ahead inflation expectations jump to 1.92%, the highest reading since 3Q 2015, according to survey of businesses published on Reserve Bank’s website
  • AUD/USD gains 0.1% to 0.7668; 10-year Australian yield falls 7bps to 2.70%; AUD/USD rises on short-covering after briefly dropping to 0.7634 session low as RBA warned that AUD appreciation would complicate economic adjustment

— With assistance by David Finnerty, Michael G Wilson, and Netty Idayu Ismail

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