French elections

Macron to face Le Pen in a tight election run-off. Would the outcome be a game-changer for the Euro?

Macron versus Le Pen

On Sunday’s first round of the French 2022 presidential elections, incumbent president Emmanuel Macron secured about 27% of the votes, whilst his closest rival, Marine Le Pen, got around 24% of the votes. In what will become a re-run of 2017’s presidential elections, Macron and his nationalist rival are now headed into the run-off vote on Sunday, April 24.

In past elections, left- and right-wing voters traditionally blocked far-right candidates from power, a phenomenon known as a “republican front”. To this, Macron told his supporters at a rally in Paris that “The game isn’t over yet,”. However, even though a survey conducted by the Ifop Institute concluded that the president was on course to get re-elected, it would be by a narrow 51% to 49%. The razor-thin margin of Macron’s expected victory against his rival is a clear indication that the “republican front” is crumbling.

Market’s Reaction to the French Presidential Elections

The Euro was underperforming major rivals late last week; for instance, it slid 1.5% against the dollar to its lowest since the end of February when Russia invaded Ukraine. According to analysts, the French presidential elections could have been a significant factor in the currency’s lackluster performance. “FX markets had possibly remained too complacent with regards to the French political risks,” says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

Following Macron’s lead over Le Pen in the first round of the elections, the EUR/USD pair started off the new week on a positive note. The exchange rate for the pair opened 0.5% higher at 1.0919 at the start of Monday’s trade and is at 1.0921 at the time of writing. As Andrea Cicione, head of research at TS Lombard, argues “The numbers are quite encouraging. There’s a significant gap between Macron and Le Pen. So, if that gets carried over to the second round, that looks like quite a good development for markets, especially bond markets.”

Nevertheless, the Euro’s positive take-off of the week will, most likely, be constrained over the next couple of weeks as it is expected that investors will prefer to remain cautious towards the Macron-Le Pen duel. Considering though that the far-right, nationalist candidate is no longer seeking a “Frexit”, even if she were to win the presidency, the Euro would not be subjected to severe shocks that it would have been subjected to in the past. “It has to be noted though that the stakes do not seem as high as five years ago, as importantly none of these candidates has campaigned on the threat to leave the Eurozone. Therefore, any eventual jitters should remain relatively contained,” Valentin Marinov argues. Even so, analysis from the investment bank, Goldman Sachs, suggests that “even without ‘Frexit’ risks“, France’s election outcome remains critical.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.

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