NEW YORK: The euro recovered from its weakest level against the dollar in six weeks on Wednesday after far-right French presidential candidate Marine Le Pen's perceived chances of winning fell, reducing concerns given the candidate's anti-EU stance.
Veteran French centrist Francois Bayrou said Wednesday he was offering an alliance with independent candidate Emmanuel Macron, a move that could give the former investment banker a much-needed boost to reach the runoff in May's presidential election.
The euro was last up 0.2 percent against the dollar at $1.0554, recovering a 0.4 percent loss that pushed the currency below $1.05 for the first time in six weeks to $1.0494 in early trading.
"Without a doubt, political uncertainty has been one of the greatest risks for the euro," said Kathy Lien, managing director at BK Asset Management in New York. "Any possibility that Le Pen may not become the next president of France has been perceived as good for the currency, and that's the reason why we saw a reversal."
Demand for the safe-haven yen fell following Bayrou's statement, reducing the dollar's losses against the Japanese currency. The dollar was last down just 0.2 percent at 113.44 yen after slipping as much as 0.7 percent to a session low of 112.91 yen in morning US trading.
So far, concern that Le Pen could win and deliver a fatal blow to the euro project have played out chiefly on the currency options market, where investors pay less to bet on the currency falling.
Implied volatility for the next three months, which allows investors to protect themselves from swings in the currency - or bet on such volatility - rose to the highest since mid-December .
The dollar index, which measures the greenback against a basket of six major rivals, was last flat on the day at 101.370. It hit a one-week high of 101.720 before Bayrou's announcement.
The Fed will release the minutes of its Jan. 31-Feb. 1 meeting at 2:00 p.m. ET (1900 GMT). Investors were awaiting the minutes to assess whether they reinforce or undermine recent hawkish comments from central bank policy makers, which have bolstered market bets on a rise in rates next month.
"If the minutes suggest that there's a pretty wide consensus that the Fed will consider a rate increase in March...I think that could lift the dollar," said David Gilmore, partner at FX Analytics in Essex, Connecticut.
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