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French election drama heats up amid tight four-candidate race

The heated battle for the French presidency has quickly transformed from a tight race among three primary candidates – the centrist Emmanuel Macron, far-right Marine Le Pen, and conservative Francois Fillon – to a four-way contest that adds far-left candidate Jean-Luc Melanchon.

The first round of the election is set for this Sunday, April 23rd. If the results of that round fail to show a majority winner, as is expected to be the case, the election will progress to a second round scheduled for May 7th. The market implications of the election outcome could be highly impactful, especially as they relate to the euro shared currency and European equity markets.

The Standings

In the few days ahead of the first round, French polls have shown a remarkably close race. The latest polling shows Macron still at the top but fending off a slightly-trailing Le Pen. Fillon and Melanchon round out the top four virtually tied with each other for third place. For the final round of the election, both Macron and Fillon are expected to beat Le Pen if they were to face her in the second round. Ultimately, however, Macron currently continues to remain the favorite to win the presidency overall.

The Front-Runners

Our earlier analysis provided brief descriptions of the backgrounds and main policy stances of the three front-runners at the time – Macron, Le Pen, and Fillon. Emmanuel Macron is seen as a centrist who supports the existence and expansion of both the European Union and Eurozone, and has been considered safe for the continued viability of the euro. Marine Le Pen is a far-right nationalist who staunchly opposes French membership in the EU and French use of the euro currency. She has been the primary cause thus far of market concerns over the future of the EU and euro in the event of her victory. Francois Fillon is a conservative who sits somewhere in the middle of the two leading candidates, as he does not advocate an end to EU membership but has promised substantial reforms to both EU policies and the euro. Fillon’s campaign was plagued early on by scandalous allegations that he used public funds to pay his wife and children over the span of several years for allegedly fictitious work.

The Melanchon Factor

The recent rise of left-wing candidate Jean-Luc Melanchon has just been the latest surprise within a drama-laden campaign season. Of particular concern for the euro and European markets is the fact that, like Le Pen, Melanchon is a staunch critic of the EU. A former Socialist Party member and founder of the Left Party, Melanchon created the Unsubmissive France movement early last year, under which he is currently running for president. Melanchon’s stance against French membership in the EU can be considered nearly as severe as Le Pen’s. He has recently stated that while he is not directly pushing for France to follow the UK’s footsteps in leaving the EU, he would do so if other EU members did not agree to negotiate substantial reforms.

Euro in the Crosshairs

With both the far-right and far-left candidates pushing for France to completely redefine its relationship with the EU, the future of the euro has been placed in serious jeopardy. Of the four front-runners, only Macron fully supports the existence and expansion of the European Union and Eurozone. Although Macron is currently the leading contender to win the presidency, his three main rivals all have varying degrees of disdain for the bloc. While Fillon is much more moderate than Le Pen and Melanchon in his negative views on the EU, he still advocates significant reforms.

The first round of the French election on Sunday could therefore be pivotal for the euro. If Le Pen and/or Melanchon show better results than expected, EU concerns could push the euro back down towards its long-term lows against the dollar and other major currencies. If Macron, or to a lesser extent Fillon, wins the day, however, the euro could undergo a further relief rally as threats to its existence potentially subside for the time being.

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