(Adds Citi, JP Morgan reports)
* Yen chief loser as stock market mood improves
* Euro higher as French leftists make no progress on unity
* Citi report shows dollar most-sold over past 4 weeks
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Feb 20 The euro rode out signs of gains
for far-right French presidential candidate Marine Le Pen on
Monday, inching higher against the dollar and the yen in trade
held in check by the absence of U.S. investors because of a
French bond yields -- the main measure of market concern
over Le Pen's chances in April and May -- showed the biggest gap
to German equivalents since 2012 after a poll showed the
head-to-head gap to centrist favourite Emmanuel Macron closing.
But the euro held on to some minimal gains, gaining 0.1
percent to $1.0616 and 0.3 percent to 120.06 yen
"This stuff is getting played out in the OAT (French
government) yields rather than the currency," said the head of
FX sales with one large international bank in London.
"I think most people think Le Pen will make it through to
the second round and then won't get any further. That is just
the consensus at the moment."
News that Socialist Benoit Hamon and hard-left rival
Jean-Luc Melanchon were discussing cooperation in their bid for
the presidency weakened the euro and supported the yen on
Investors believe such a tie-up could either backfire and
propel anti-globalisation, anti-EU candidate Le Pen into the
Elysee palace or succeed and land France with a far-left
president pursuing deficit-boosting economic policies.
But policy proposals outlined by Melanchon on Sunday
underscored the gap he would have to bridge with Hamon to find a
common platform for the April and May polls, also helping the
"If they did unite then any outcome would be a bad outcome
from the market's point of view," said Richard Benson, co-head
of portfolio investment with currency fund Millennium Global in
"It was what caused the risk-off move on Friday, although
the interesting thing was it seemed to play out more on
dollar-yen than the euro. In general the market does seem very
The start of 2017 on currency markets has been dominated by
disappointment with U.S. President Donald Trump's early fiscal
and tax policies, turning back a reflation trade on the dollar
that had bet on swift moves to encourage repatriation of capital
to the United States and boost spending.
Millennium's Benson said Trump's State of the Union speech
in 10 days' time might be crucial for those trades.
Trade on Monday was cooled, however, by the absence of U.S.
markets for the Presidents Day holiday.
Stock markets in both Europe and Asia eked out some gains,
pointing to a broadly more positive mood. That tends to benefit
several of the major currencies at the expense of "safe havens"
like the yen and Swiss franc.
The latest analysis of investment flows from the world's
biggest currency trader, Citi, showed the dollar is the most
sold of the G10 group of major currencies over the past four
weeks. Commodity Futures Trading Commission data on Friday
showed speculators had reduced bullish bets on the dollar to
their lowest in four months.
The past week had seen investors sell the commodity-price
related Australian and New Zealand dollars, they said.
"Overall, the big picture in Citi's flow is "caution". We
are recording a bearish shift from client flows three weeks ago,
and that keeps us defensive," they said.
In a weekly note sent to media on Monday, JP Morgan analysts
also stuck with their call to "short" - bet against - the dollar
in favour of the Swiss franc and yen.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Editing by Dominic Evans/Keith Weir)