UBS Bullish Euro Even as It Sees 40% Odds of Le Pen Victory

  • Bank holds bullish position in euro for its wealthy clients
  • Sees euro climbing to $1.12 in 3 months, $1.20 in 12 months

UBS Group AG, the world’s largest private bank, expects the euro to rebound after the French election as nationalist Marine Le Pen is unlikely to become the next president.

The Zurich-based bank holds a bullish position in euro against the dollar for its wealthy clients who have given it the mandate to manage their assets, said Wayne Gordon, executive director for commodities and foreign exchange at its wealth management unit. Though UBS has assigned a relatively “high” 40 percent probability that Le Pen, who advocates that France leave the euro, will win in the run-off on May 7, it doesn’t see her as president, Gordon said.

“The only thing holding global fund managers back from Europe is Marine Le Pen,” Gordon said at a briefing in Singapore. “If that was out of the way now, you would be seeing a significant equity market rally, significant euro-dollar rally.”

The odds UBS gives to Le Pen is higher than the 27 percent assigned by bookmakers. “Probably the Dutch result tells us that the probability is on the top side and so 40 percent doesn’t win her the presidency,” Gordon said.

The single currency advanced Tuesday after a poll showed independent candidate Emmanuel Macron emerged as the most convincing of the five contenders in the first televised debate, ahead of Le Pen. Polls show that both he and Le Pen will have about a quarter of the electorate behind them in the first round vote, with Francois Fillon in third place on about 19 percent. UBS doesn’t have an official view on whether Macron or Fillon will become the next president, according to Tan Teck Leng, a foreign-exchange analyst at its wealth management unit.

Here is a selection of the bank’s views on the euro:

  • UBS sees the euro climbing to $1.12 in three months, $1.15 in six months and $1.20 in 12 months. The currency gained 0.6% to $1.0800 on Tuesday
  • It will be attractive for investors to add to their long EUR/USD positions if the single currency falls to $1.05 on signs of a victory by Le Pen in the first round of the election on April 23, Tan says
  • The election in Germany in September will have limited downside risk for the euro as the leading candidates are pro-EU, Tan says at the same briefing
  • Prospect ECB will start cutting stimulus by year-end will also support the euro
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