There’s only one story in town this morning – the battle for Europe’s future, otherwise known as the French general election.
As had been predicted for many months, the pro-Europe, centrist candidate Emmanuel Macron and the far-right, Eurosceptic candidate Marine Le Pen have made it through to the head-to-head second round of voting, to take place on May 7th.
With 96% of the votes counted, Macron’s 23.9% and Le Pen’s 21.4% portion of the vote is enough to see off François Fillon and Jean Luc Mélenchon, both of whom have approximately 19% of votes at the time of writing. Fillon has conceded defeat and has asked his voters to support Macron.
The news of a Macron-Le Pen head-to-head comes as a major relief to investors who, in recent weeks, had been facing the prospect of a worst-case-scenario for European political stability, that being a second round involving Le Pen and the far-left candidate, Mélenchon, whose popularity had surged in recent weeks.
Macron has long been expected to do well versus Le Pen in a head-to-head battle, and markets now see him as a near certainty to be the next French President, demonstrated by the pricing adjustments in financial markets on Monday morning.
Bookmakers believe the same, now pricing Macron as a general 1-to-8 chance, indicating an 89% probability of him being the next to experience the comforts of the Élysée Palace. Le Pen is priced between 9-to-2 and 11-to-2, indicating a 15%-18% probability that she will be victorious (it is normal for the total probability of the two candidates to be above 100%, with the surplus being the bookmaker’s ‘overround’, or margin).
Risk is Back On as Euro Gaps to Multi-Month Highs and Safe Havens Fall
The euro gapped up on this morning’s open to five-month highs against the US dollar and three-month highs versus the Australian dollar. New highs in EUR/USD and EUR/AUD are at 1.0918 and 1.4437 respectively.
Against the New Zealand dollar, the euro didn’t quite open at new five-month highs, but did trade to them within ninety-minutes of the session starting. EUR/NZD reached as high as 1.5494.
The euro also did especially well this morning against the yen, reaching 120.33, having closed at 116.87 on Friday.
Having said this, common trading wisdom tells us that markets like to close gaps, and this is being proven right today. As of writing, a little after 02:00 GMT, the euro has retraced to fill around half of its upward gap in the majority of pairs.
Gold – a safe haven asset – has also gapped down this morning, trading as low as $1265.31, and currencies indicative of the prevailing ‘risk-on’ or ‘risk-off’ sentiment are suggesting the former has taken hold. Specifically, the Australian dollar – so crucial to the FX carry trade – is higher against all major currencies, with the obvious exception of the euro, and the Japanese yen – another safe haven asset and the currency typically used to fund carry trades – has gapped lower across the board.
Euro Strength in 2017 the Most Likely Outcome
Further strengthening of the euro should be expected in 2017 should Macron go on to be victorious in the French election. The euro is historically cheap after all, and will certainly be boosted by this year’s expected tapering of the ECB’s quantitative easing program.
It is likely that in the coming days and weeks, major banking and economic research groups will revise higher their forecasts for key euro exchange rates, driving investment funds into the euro and, consequently, raising the currency’s price.
BestExchangeRates readers that are impacted negatively by a rising euro should consider buying the currency sooner rather than later. Use our online comparison calculators for Euro Travel Money and Euro Foreign Currency Transfers to easily find the cheapest provider.
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