Euro Little Changed as Macron Beats Le Pen in French Election

Updated on
  • Triumph for centrist candidate was largely expected by markets
  • Shared currency trims gains from highest level since November

Macron Says A New Chapter in Our History Has Been Opened

The euro erased initial gains against the dollar to trade little changed after centrist Emmanuel Macron defeated Marine Le Pen in France’s presidential elections, an outcome that will allay investor concerns about the nation being led out of the currency bloc.

The shared currency traded at $1.1000 as of 7:15 a.m. in Tokyo on Monday after earlier rising 0.2 percent to $1.1023, the highest level since November. The gain was more muted than the reaction that followed Macron’s first-round win, when the euro rose almost 2 percent within 15 minutes of the open. With polls consistently giving Macron the lead in the run-up to the second round, markets had largely priced in a victory for the centrist, limiting the scope for a more sizable relief rally.

Macron is set to beat the anti-euro candidate Le Pen by about 65 percent to 35 percent, according to the estimates of four separate pollsters -- a bigger lead than predicted by surveys before the election. While expected, Le Pen’s defeat removes a cloud that has been hanging over the shared currency for most of this year, and will strengthen its longer-term outlook, according to analysts.

“The question now is whether real money investors, hesitant to commit more to euro zone assets ‘just in case,’ will now do so with more gusto,” Ray Attrill, head of foreign exchange strategy at National Australia Bank Ltd. in Sydney, wrote in a note on Monday.

NAB still expects the euro to grind higher in the coming weeks and months partly in anticipation of the European Central Bank now expressing more confidence that downside risks to the euro-zone economy have further receded.

The outcome of the vote “should support the euro, although markets were already expecting Macron to win,” Athanasios Vamvakidis, head of G-10 currency strategy at Bank of America Merrill Lynch in London, said in emailed comments.

UniCredit SpA, which currently expects the shared currency to finish the year at $1.10, is likely to revise its forecast higher if the second round passes without any surprise, strategists including Vasileios Gkionakis said in a note to clients before the vote. Nomura Holdings Inc., and Bank of America Merrill Lynch both expect further gains for the euro, with the Japanese bank looking for a rebound to at least $1.15 in the next three to four months.

French Rally

The spread between French and German 10-year yields, seen as a key metric of investor concern before the vote, narrowed to the lowest since January on Friday, down from a four-year high in February.

French, Italian and Spanish stocks have been the big winners from the drop in perceived political risk since the first round. The CAC 40 has gained more than 7 percent, while the FTSE MIB is up almost 9 percent and the IBEX is up more than 7 percent. This compares with a gain of 2 percent for the S&P 500 and of 3 percent for the MSCI World index over the same period.

Analyst Comments

  • “One shouldn’t expect fireworks later on -- after all, there was a larger-than-90% probability for Macron making it and polls ahead of the first round were quite accurate already,” Manuel Oliveri, a strategist at Credit Agricole SA, said in emailed comments.
    • “A jump toward $1.1050 and slightly above is likely for the euro, but a more sustained upside will depend on other factors such as further stabilizing ECB monetary policy expectations.”
  • “In our view, it will be difficult for Macron to obtain a majority in the lower house, but cohabitation is likely to be avoided if Macron forms a cross-party coalition with center-left and center-right parties around a narrow set of reforms," Raphael Brun-Aguerre, an economist at JPMorgan Chase & Co., said in emailed comments.

— With assistance by Blaise Robinson

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