The CurrencyShares Euro Currency Trust (NYSEArca: FXE), which tracks the euro’s price movements against the dollar, is higher by 6% year-to-date and that is good for one of the best performances among developed market currency exchange traded funds.
Some traders are growing increasingly bullish on the common currency.
Traders perception that Eurozone political risk is decreasing following France’s presidential election is helping boost the common currency. Centrist and pro-EU Emmanuel Macron won France’s election, the desired result for financial markets and the euro. Euro traders have hopped on the theme of nascent French dynamism spurred by Macron’s tax cuts and government streamlining, but this is all based on the new French president’s proposals passing parliament’s Coalition of the Unwilling.
“J.P. Morgan Asset Management has increased its exposure to the euro and European equity markets in the past few months, while Western Asset Global Mgmt Ltd., which has been underweight the shared currency since 2011, began buying it in December and boosted its position through April,” according to Bloomberg.
Still, the euro is not out of the political volatility woods just yet. Later this year, Germany and Italy, the Eurozone’s largest and third-largest economies, hold national elections.
In Italy, former Prime Minister Matteo Renzi resigned in December following a no-confidence referendum. At the time, some market observers believed Renzi’s resignation could lead to early elections and a rise in support for the populist anti-euro Five Star Movement. The party would seek to carry out a referendum on Italy breaking away from the Euro area.
“Emmanuel Macron’s victory in French parliamentary elections, an agreement between Greece and its creditors to release new loans and the defeat of the anti-establishment party Five Star Movement in the local vote in Italy are making investors more confident on the outlook for the shared currency. That compares with earlier in the year, when concerns over the rise of populism across Europe rekindled speculation of a possible breakup of the currency bloc,” according to Bloomberg.
Over the past year, FXE is lower by 1.2% while the U.S. Dollar Index is higher by 2.5%.
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