How will the Euro react to the first round of the French presidential elections?
As we inch closer to summer, the European political agenda comes into focus. After a long and arduous campaign trail, the French are preparing to vote in the first round of the presidential French election. As the French veer into warmer days, the political tensions in France heaten. No one knows the outcome of this pinnacle election.
The first round takes place on the 23rd of April, leaving the final round to the 7th of May, where the final candidates will grapple for the votes of the French people.
The euro has climbed up 1% in 2017, averaging at about $1.06 against the dollar. Traders are reluctant to sell below the $1.06 level – the January and March lows.
Uncertainty underpins market trends. French and German debt’s relationship is growing farther apart, touching 2012 levels. The yield France pays on its bonds has traditionally lied close to that of Germany. However, the reflection of perceived safety has dwindled, causing the relationship between German and French date to interlude and the spread to widen.
While measures of risk are slightly inflated, much of the political risk has been priced into the market, leaving less room for excessive volatility as we close in on polling day. The shocks from both Brexit and the election of Donald Trump are still fresh on investor’s minds, hence the cautious tones in risk barometers.
Most polls are pointing towards Emmanuel Macron as France’s next president, which would help elevate the euro. However, if Marine Le Pen becomes a semi-finalist or the overall winner, the euro could fall below that $1.06 mark. Le Pen’s agenda is to leave the European Union, if elected.
However, reflation of the euro is very possible if the French voters elect Macron, as a vote for Macron is seen as a vote for the European Union.