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French Election 2nd Round: Would a Macron win extend the euro rally?

The time has come once again for markets to speculate on who will ultimately become the next president of France, as the second round of the French presidential election is set for this Sunday. But this time, unlike the first round of the election two weeks ago, the deep market concerns that anti-euro candidate Marine Le Pen might have a good chance to win have turned into a distinct expression of relief that pro-euro Emmanuel Macron is increasingly likely to pull out a potential landslide victory.

Poll Standings

Of course, we would not be so presumptuous as to declare a winner, or a margin of victory, before the voting even begins. But latest polling has shown Macron widen his already sizable 20-point lead over Le Pen in the past few days to around 24 points as of Friday. On average, major polls currently indicate that Macron is leading at around 62% to Le Pen’s 38%. This increase in Macron’s lead only two days before the final round of voting can be attributed in large part to his performance on Wednesday night’s debate, where Macron was considered decidedly victorious by a majority of polled voters.

While some may point to the inaccuracy of public polling in recent times (e.g., last year’s UK Brexit referendum and US presidential election), the sheer magnitude of Macron’s dominating lead in current polls suggests that this time, pollsters may actually be worth heeding seriously.

Le Pen Fears Abating

In the extended run-up to Sunday’s final round of voting, the major concern for financial markets, especially European markets and the euro, have centered around Marine Le Pen’s strong stance against French participation in the European Union and the euro shared currency. Though Le Pen has recently begun to tone down her rhetoric surrounding these issues, her policy stances and that of her far-right National Front party have clearly constituted a severe threat to the euro.

After the outcome of the first round of the election less than two weeks ago, when Macron’s lead became even more apparent and markets let out a collective sigh of relief, the euro gapped higher against its major currency counterparts, most notably the US dollar and Japanese yen. Since that time, instead of filling that gap, the euro has continued to follow-through with a strong relief rally as Macron has continued to maintain and widen his lead. As of Friday, this surge has pushed EUR/USD up to hit a year-to-date high around the 1.1000 handle, and EUR/JPY up to a YTD high near 124.00.

Macron and the Euro

It can be reasonably assured that in the unlikely event of a Le Pen win, the euro would most probably take a very substantial, even potentially massive, hit. But the key question now is, how much more can the euro rise if Macron is elected as widely expected? Is a Macron victory mostly priced-in already to the sharply rallying currency?

In the end, much will likely depend on not just the potential win itself, but the resulting margin of victory. The tightly-contested first round of the election showed us that French voters are rather deeply divided on many issues, including French participation in the EU and euro. In the event that Macron takes the presidency on Sunday, it is highly unlikely that the anti-euro voices of Le Pen, her National Front party, or even that of far-left former candidate Jean-Luc Melenchon, will just go away.

If Macron wins with a substantially larger portion of the vote than expected, he will receive a clearer mandate and greater backing to steer the country towards helping support and expand the EU/eurozone. If a relatively close race leads to a Macron victory, however, the new president may not be able to subdue those anti-euro voices, and fears of euro instability could continue to plague and pressure the shared currency. Therefore, while it is expected that the euro will likely rise further if Macron wins on Sunday, the magnitude of that rise should be subject in large part to his resulting margin of victory.

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