Gains for riskier foreign exchange trades in recent weeks have come at the expense of the so-called havens such as the Japanese yen and the US dollar.
As a politically tumultuous 2016 ended, the euro had fallen heavily against all three of the main haven currencies: 10.5% over the year against the dollar, 10.3% against the Japanese yen and 10.6% versus the Swiss franc.
These hefty declines reflected not only the UK's decision to exit the European Union, but also the uncertainties that lie ahead with a new US President and general elections in several EU countries, including the Netherlands, France and Germany.
Trump’s dollar diplomacy
There was much debate about the impact of the election of Donald Trump to the White House in November's election. Would his pro-business platform boost the dollar, or would he choose to use his position in an effort to weaken the currency and boost exports?
Even though he had accused foreign nations of unfair currency manipulation in his first few days in office, it wasn't until April 12 that he used an interview with the Wall St Journal to express concern about dollar strength and rising interest rates.
"It’s the time of the year we are all waiting for the report of the US Treasury about currency manipulators, and in this environment, President Trump’s comment that the dollar is too strong had some considerable impact on the market," says Markus Allenspach, head of fixed income research at Julius Baer.
Back in Europe, the Dutch elections in March, that returned incumbent prime minister Mark Rutte, helped soothe fears that a Brexit-inspired wave of anti-EU feeling would sweep across the continent, calling for more countries to exit the union.
The current French presidential elections also appear to have had a similar soothing impact on the euro as centrist Emanuelle Macron holds an 18 point lead on National Front leader Marine Le Penn following the first poll.
"Markets have breathed a huge sigh of relief and [the euro has] rallied higher as the chances of Le Pen being able to enact her plan to lead France out of the euro evaporate," says Jake Trask, research director at OFX.
During April, the euro has rallied against all of the havens: up 2% versus the dollar, 3.3% against the yen and 1.6% on the Swiss franc.
ECB’s QE exit strategy
The euro has also responded to increasing expectations that the European Central Bank will begin its exit from years of bond buying under its quantitative easing programme that has expanded its balance sheet to €4tn.
Unemployment is dropping, manufacturing is gathering speed and inflation is beginning to creep higher, making the exit strategy an ever more important topic of debate at the governing council’s policy meetings.
Although few expect any “tapering” of the bond-buying programme to start this year, the ECB’s monetary easing phase is drawing to a close.
Analysts at Royal Bank of Canada don’t expect the ECB to begin easing in 2017, but note: “The direction of travel seems clear – if anything some of the dovish signals are likely to be reduced as the ongoing discussion about the change in the forward guidance indicates.”
Risk appetite improves
With euro traders breathing easier, risk appetite has improved broadly in the last week with emerging market currencies reaping some of the biggest rewards as inflows into Asian debt and equity markets surge.
The Indian rupee has gained 1.4% against the dollar in April, while the Malaysian ringgit has jumped 2.4%.
Matteo Germano, global head of multi-asset investments at Pioneer Investments says: "The outlook is becoming more positive for emerging markets."
He adds: "We believe that China and India continue to be best positioned for the potential expansion of domestic demand and ability to perform structural reform."
While few expect surprises this year on the scale of last year's UK Referendum or White House results, there are still many reasons to keep an eye out for political turmoil putting the squeeze on risk appetite.
The negotiations for Brexit still have the ability to expose deep divisions in Europe, while President Trump's combative style of leadership is not guaranteed to keep markets settled for long.