* Euro drifts lower in morning trade in Europe
* Many players moving to sidelines ahead of first round of
* Options pricing still shows substantial concern over
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, April 21 The euro fell back on Friday,
trading almost a cent off this week's highs as investors
prepared for the first round on Sunday of a tight French
presidential election race.
Traders said an upbeat flash Purchasing Managers' Index
survey from France and polls showing centrist Emmanuel Macron
still in pole position ahead of the vote had helped settle
nerves after a dip late on Thursday.
There was no obvious reaction to the shooting of a French
policeman in central Paris overnight, an attack claimed by
But with options markets suggesting investors are
extremely concerned about the chances of strong results for
far-right and far-left candidates Marine Le Pen and Jean-Luc
Melenchon, the euro fell 0.2 percent against the dollar in
morning trade in Europe.
"I think everybody is locked down," said Simon Derrick, head
of the global markets research team at Bank of New York Mellon
"It is kind of reminiscent of the big events last year where
people know that it is a binary outcome so the best approach is
to remain as cautious as possible."
Other major currency pairs were stuck in tight ranges, with
Britain's weakest quarterly retail sales number in five years
doing minimal damage to sterling after a 4-cent surge earlier
The numbers provided further evidence of a weakening of the
consumer demand that has propped up economic growth since the
Brexit vote last June. But they come at a time when investors
seem optimistic about Prime Minister Theresa May's shock
decision to call an early general election for June 8.
"We used to think that when the going got tough, the Brits
went shopping, but this retail environment is too much for the
hardy British consumer," said Jeremy Cook, an analyst with
corporate and retail currencies provider World First.
"If these poor numbers are a shock then you haven’t been
The big risk for currency markets is Le Pen's opposition to
the euro and France's European Union membership but even if she
makes it into the run-off as expected, the odds of her beating
Macron or conservative Francois Fillon are rated as low.
Mapping what it says have been tightly-correlated moves in
the euro against the odds of a Le Pen presidency this year,
Goldman Sachs analysts estimated the euro could appreciate to
$1.13 if she is knocked out of the race in Sunday's vote.
Conversely, an improvement in her odds of winning and a
resulting sharp rise in the chances of France leaving the euro,
could weaken the euro by around 5 percent, bringing it close to
parity with the dollar, they said.
Others, however, stress that should Le Pen perform broadly
in line with polling to date, confidence she cannot win in the
second round should see the euro appreciate.
"Absent a shock result in the French election, the euro
should rally," analysts from Societe Generale said in a weekly
For Reuters Live Markets blog on European and UK stock
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(Editing by Catherine Evans)