* Single currency hit by French election fears
* Cost of hedging euro volatility jumps
* U.S. dollar gains broadly
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By John Geddie
LONDON, Feb 7 Beset by political worries, the
euro was set for its biggest daily fall of 2017 on Tuesday
against a broadly stronger U.S. dollar.
The single currency shed 0.8 percent against the
dollar, with investors fearing far-right, eurosceptic candidate
Marine Le Pen was gaining momentum before France's presidential
The cost of hedging volatility in the single currency
against the dollar around the time of the final French vote on
May 7 rose to its highest in over a week.
Elections in the Netherlands, Germany and possibly Italy,
more wrangling over Greece's bailout and an upcoming reduction
in the European Central Bank's monthly bond-buying volumes are
also playing on investor nerves, analysts said.
The dollar itself, recovering from its worst start to a year
in three decades, gained against a basket of other currencies,
rising 0.7 percent. It was on track for its biggest daily
gain since early January.
That strengthening accelerated after China reported its
foreign exchange reserves unexpectedly fell below $3 trillion
level in January for the first time in nearly six years
"The euro is on the defensive with markets nervous not only
about European political risks but also the upcoming reduction
in ECB bond purchases," said Jeremy Stretch, head of currency
strategy at CIBC.
"All in all its been a virtuous tailwind for the U.S. dollar
this morning and there is also fear of capital flight (from
China) which is feeding safe-haven flows."
The Japanese yen gave up earlier gains against the dollar
and at 0900GMT was down 0.4 percent at 112.12 yen to the dollar
The British pound fell as much as 0.9 percent to $1.2347,
its lowest in two weeks, although it was steady against the euro
at 86.24 pence
The Australian dollar shed 0.5 percent to $0.7621,
after the Reserve Bank of Australia left interest rates
unchanged. The New Zealand dollar dropped 0.3 percent to
On the data front, analysts said U.S. trade numbers due
later on Tuesday could help determine the future direction of
Widespread predictions late last year that the dollar would
gain in early 2017 were upset by a combination of worries over
U.S. President Donald Trump's protectionist bent and hints he
would prefer a weaker currency.
"With the protectionist trade stance the United States is
seemingly poised to adopt now a key market theme, the December
U.S. trade data due later today garners attention," said
Masafumi Yamamoto, chief FX strategist at Mizuho Securities in
"A trade deficit that exceeds forecasts would weigh on the
dollar by raising caution in the market towards top U.S.
officials, who may speak out against perceived dollar strength."
For Reuters Live Markets blog on European and UK stock
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(Reporting by John Geddie, editing by Larry King)