There is a sense of normality again in the markets this morning with the European ideology alive again. The pro-EU centrist Emmanuel Macron won the final round of the French election in a decisive manner to become the country’s youngest president.
The currency movement has been rather subdued this morning, with the euro slightly down against most of its major peers as investors look to take profit on their positions. We did however see EURUSD break briefly above 1.10, but over the course of the Asian close it has dropped back to the mid 1.09 level. The single currency will now look to the ECB for direction as Draghi and Co. will be under increasing pressure to start adjusting their approach to align with the recovery in the Euro area.
ECB executive board member Yves Mersch, has already been across the wires this morning calling for a shift in their rhetoric “Our forward guidance needs to be aligned with an evolving assessment to underpin both the consistency and credibility of our communication.” Statements of this manner from other ECB members will no doubt see the euro strengthen as pressure will start to mount on the Central Bank to adjust its guidance policy.
Before the French elections dominated attention, we had key US payrolls and employment data out last Friday. The headline releases showed the unemployment rate lower than expected and now down at 4.4%. The Non-Farm Payroll figure also beat expectations too showing 211,000 new jobs created versus 190K. Whilst the headline figures impressed markets, the finer details showed that all is not as rosy as they would lead to suspect. Firstly, the prior month’s weak reading was revised lower to 79K. Secondly, wage inflation missed expectations showing only growth there at 2.5% and finally the labour force participation rate slipping too.
Overall the USD reaction was muted and if anything, the dollar was sold off in response albeit only mildly so and well within recent ranges. Market expectation is still firmly in favour of a Fed USD rate hike next month with the probability still unchanged at approximately 77%.