Nervous investors retreat from euro amid fears over EU election upheaval
Political uncertainty ahead of European elections prompted nervous investors to sell the euro and kept French government debt under pressure on Wednesday while the price of safe-haven gold hit three-month highs.
Three months before the final round of France's presidential election, investors are concerned about the strong showing of far-right candidate Marine Le Pen, who has promised to take France out of the eurozone and to hold a referendum on EU membership.
While polls suggest Len Pen would not win, several other frontrunners' campaigns are in disarray.
Eurozone government bond yields fell broadly - a sign investors are buying more low risk assets, though French debt lagged the rest, with 10-year yields falling to 1.1pc but holding close to 17-month highs touched on Monday. Low-risk German equivalents fell to 0.31pc, a two-week low.
The gap between the rates investors would charge the euro area's big two governments widened to more than 0.78pc, its widest since November 2012. That move was also fuelled by expectations the extent of the European Central Bank's bond-buying stimulus scheme has passed.
"If you step back, the big picture still remains - that of political concerns in Europe concomitant with speculation over ECB tapering," said Rabobank's head of rates strategy Richard McGuire.
The premium investors demand to hold low-rated Italian 10-year bonds rather than German Bunds hit its highest since 2014.
Apart from German debt, investors also bought gold, which is seen traditionally as a safe investment in uncertain times. Spot gold hit a three-month high of $1,240.40 (€1,159.71) an ounce. The euro currency weakened a further 0.2pc to $1.0653 after a sharp fall on Tuesday.
Sterling was up 0.2pc versus the euro at 85.2 pence per euro.
The dollar, whose predicted path higher has been interrupted lately by uncertainty over US President Donald Trump's economic policies, rose 0.2pc against a basket of other major currencies.
Investors are still waiting to see whether Trump makes good on his campaign pledges to cut taxes and boost spending.
- Barry Eichengreen: I'm taking bets that those who want to give euro short shrift will be wrong again