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Capital Markets

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Categorized | Currencies

Euro could hit parity with dollar ahead of French elections – Soc Gen

Posted on November 22, 2016

The euro is likely to hit 1 for 1 against the dollar ahead of France’s presidential elections next spring, according to investment bank Société Générale, which expects the single currency to weaken on the back of heightened political threats and more central bank stimulus measures in the eurozone.

The euro has fallen more than six per cent against the dollar following Donald Trump’s election as US president, amid fears the Republican candidate’s victory will embolden protectionist and populist political forces on the continent.

With the euro currently trading at $1.0645, Soc Gen thinks the currency will weaken to $1.00 by March 2017, before climbing up to $1.09 by the end of the year.

“Nervousness about the political outlook and potential for yet another populist surprise will keep the euro under pressure,” said Kit Juckes at the French bank.

He notes that investor jitters are currently being seen in the debt markets, where the spread between Italian and German benchmark bond yields is at its widest level since 2013.

Italians will vote on a key constitutional referendum on December 4, where incumbent prime minister Matteo Renzi looks set to be on the losing side – an outcome that could lead to his resignation. December 4 will also mark a re-run of Austria’s presidential vote where the country’s right-wing candidate Norbert Hoffer is expected to triumph, followed by Dutch elections in March next year, the French vote in April and German elections in the autumn.

All the votes pit establishment candidates against insurgent, anti-immigration eurosceptic parties.

At present, it looks as though France’s presidential election will be contended by right-wing former prime minister François Fillon and the extreme right Marine Le Pen of the Front National.

“Fillon’s focus on conservative values may cost Le Pen some first-round votes but current polling suggests they would both make it into the second-round run off in May,” said Mujtaba Rahman at Eurasia group.

A weaker euro would be good news for the European Central Bank, however, which has been on a two-year bid to raise growth and inflation in the eurozone.

Policymakers at the European Central Bank are widely expected to extend their landmark asset purchases beyond March 2017 next month – a move that should add pressure on the single currency.