Political uncertainty is knocking the euro, and some experts are advising investors to short the common currency as a hedge against risk.
Upcoming elections in the Netherlands, France and Germany are holding investors’ attention. In France, the possible election of Marine Le Pen for president would have a big impact on the euro if she pushed for a referendum on membership of the common currency or leaving the European Union.
Since the election of Donald Trump in November, the euro has dropped nearly 4 percent against the dollar. It is currently trading around $1.06 to the dollar.
Valentin Marinov, managing director and head of G10 FX research at Crédit Agricole, says further downside for the euro is likely and predicts it could fall to $1.04 or $1.03, as the euro is pricing in risks from the upcoming Dutch and French elections.
“The risks for euro/dollar are firmly on the downside from here,” he told CNBC.
“We are short euro at the moment against the dollar, and we believe that short euro/yen is another interesting hedge going into the election. I describe it as a hedge because our central case is still that Le Pen won’t win.”
However, after the surprises of election in 2016 which defied pollsters’ predictions, such as Brexit, Marinov says risks could increase and investors are advised to be cautious.
“Euro/yen is attractive especially, given that in the options space the markets are very short yen, which makes long positions in the currency space very attractive.”
