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“The key risk for the euro in the second quarter is economic growth and political uncertainty, and the French election is one of the key political events,” said Brown Brothers currency strategist Mark McCormick. “Just because Hollande wants to renegotiate the terms of the fiscal compact, a lot of it may be political rhetoric, but I wouldn’t rule out the possibility that he would try to dilute some of the things they put in there.”
McCormick said there is concern that victory by Hollande in the May election would damage the important alliance between France and Germany in addressing Europe’s sovereign issues. “The influence now for political support has been through the relationship between Sarkozy and (German Chancellor Angela) Merkel. I think you’re going to be hard pressed to see a relationship form between Hollande and Merkel,” he said.
The Dow slumped 82 points to 13,202 Wednesday, after its strong rally Tuesday. IBM , reacting to Tuesday’s disappointing earnings news, was responsible for 55 points of the decline. The S&P 500fell 5 to 1,385.
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