Political risk ebbs in Europe, rises in the US - AmpGFX

Analysts at Amplifying Global FX Capital explain that much of the risk premium related to the French election has been unwound contributing to a surge in European asset prices as the EUR is higher, but has stalled around the previous peaks set after the less dovish than expected 9 March ECB meeting. 

Key Quotes

“The rally in EUR still appears modest compared to other Eurozone assets.  European economic surveys have continued to rise in April to their highs since around 2011, despite French election uncertainty. Global growth indicators have also strengthened further.  Expectations of any change in policy guidance have been dampened by ECB comments in recent weeks, but it is under pressure to remove its downside bias on economic risks and interest rates in its policy statement and press conference on Thursday.”

“Trump may have bitten off more than he can chew this week with a tough road to pass a funding bill complicated by his pressure for including funding for a border wall, passage of a Healthcare bill, and announcing tax policy.  Trump appears more focused on shoring up support from his true believers than passing bills.  He may be pushing ahead with pursuing tougher trade deals; including tariffs on steel imports, fueling fears of trade wars, while confidence in his ability to deliver tax reform or infrastructure spending may be fading.  Passage of a funding bill this week may be crucial for maintaining economic confidence in the USA.  Failure will bring into question the government’s capacity to deal with the debt ceiling, delivering tax reform and tough budget negotiations ahead of the next fiscal year in October.”

“EUR may not only benefit from less political risk in Europe, but rising political risk in the US and a potential flare-up in geopolitical risk, such as heighten risk of a US conflict with North Korea.”