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Macron/Le Pen win French election first round – euro surges

With most of the votes for the first round of the French presidential election reported late on Sunday, the outcome has emerged very much as pre-vote polling had suggested. Centrist Emmanuel Macron and far-right candidate Marine Le Pen have been voted through to advance to the second and final round of voting, set for May 7th. Though it was a close race to the very end, first round votes eliminated both the conservative candidate Francois Fillon and far-left, anti-EU candidate Jean-Luc Melenchon. Macron emerged with around 24% of the votes, with Le Pen trailing at around 22%. Fillon and Melenchon each received around 20% of the votes.

Though the Macron/Le Pen outcome had already been widely expected, the euro gapped up sharply in the pre-market and into Asian session trading as exit polls increasingly pointed to advancement for both the most pro-euro candidate and the most anti-euro candidate in the race. This euro surge was partly due to Macron securing a significantly greater share of the votes. Also, there was widespread relief that the worst-case scenario for the euro – a Le Pen/Melenchon face-off – had been averted. And when it became apparent who the victors in the first round would be, some losing candidates, including Fillon and Socialist Benoit Hamon, immediately urged their supporters to vote for Macron in the second round. This further support for Macron has helped to neutralize the severe threat that Le Pen poses to the euro, giving a further boost to the shared currency.

Though Le Pen is still very much in the ultimate race for the presidency, markets breathed a sigh of relief that the “safest” possible candidate for the EU and euro – Macron – had extended his dominance. As a result of this relief, the euro not only surged to hit a five-month high just above 1.0900 against the US dollar at one point on Sunday, but safe-haven gold stumbled sharply and US stocks surged around 1% in the pre-market. Of particular note, the euro’s sharp rise and the safe-haven yen’s sharp fall combined to prompt a substantial gap up for EUR/JPY above the key 120.00 psychological level before pulling back modestly.

Will these swift market reactions characterized by sharp relief rallies endure going forward? Much will depend on how Le Pen fares in the final two weeks of campaigning before the second round of voting on May 7th. Although it has been widely speculated that Macron would win the final round if facing off against Le Pen, this is by no means a foregone conclusion. Stranger turns of events have occurred in recent times than a potential Le Pen victory in the second-round run-off. Currently, however, Macron’s position appears relatively secure, especially with the newly-expressed support of Sunday’s losing candidates. If this continues to be the case, the euro could remain supported as the specter of Le Pen continues to diminish.

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