The US dollar roared higher on Wednesday following some hawkish comments from Federal Reserve Chair Jerome Powell, following the US central bank’s latest interest rate decision.
If 2016 taught us anything, it was that there’s no such thing as a sure bet in the world of politics.
Brexit, Trump – in both the EU referendum and the US Presidential election the impossible happened, with dramatic repercussions for the currency market.
Will the same be true on Sunday when voting in the first round of the French Presidential election gets underway?
For weeks the outcome of the French election has been too close to call, with four key figures vying for dominance at the head of the pack; the National Front’s Marine Le Pen, centrist Emmanuel Macron, former Prime Minister Francois Fillon and the left-leaning Jean-Luc Mélenchon.
Although support for both Fillon and Mélenchon has fluctuated, recent polling figures indicate that it will be Macron and Le Pen moving on to the second round. But how would a victory for any of these candidates impact the euro?
"Although support for both Fillon and Mélenchon has fluctuated, recent polling figures indicate that it will be Macron and Le Pen moving on to the second round."
First up, we have Marine Le Pen, the controversial anti-EU, far-right candidate. In most recent polls Le Pen has commanded over 20% of the vote, and it is believed she will move forward to the second round.
Given that Le Pen’s campaign pledges include plans to hold a referendum on EU membership and to reintroduce the French franc, a victory for this candidate is likely to send the euro into a tailspin.
Next we have Emmanuel Macron, something of an untested quantity in the world of politics. Having only really been on the radar since 2016 (when Macron launched the ‘En Marche!’ political movement), Macron’s advance has been rapid and the candidate now reportedly has the support of ex-US President Barack Obama. As a former investment banker, Macron’s policies are largely financial – including proposals to cut corporate tax and exempt low wage earners from certain social welfare levies.
The odds of Macron making it through to the second round of voting are high, and some polls have him comfortably winning the election. Victory for Macron is likely to have a stabilising effect on the euro, and his focus on getting French finances back on track may mean we see the euro rally if he becomes President.
"The odds of Macron making it through to the second round of voting are high, and some polls have him comfortably winning the election."
Meanwhile, euro volatility can also be expected if we end up with another political shock and either Fillon or Mélenchon make it through the first round of voting.
Given that Mélenchon (like Le Pen) wants to see France leave the European Union, news that he has made it through to the second round would be euro negative. In fact, both Mélenchon and Le Pen going on to the second round would potentially be the worst-case scenario for the common currency, given that it would substantially increase the odds of a so-called ‘Frexit’ (French exit from the EU).
Although Fillon believes the EU needs to be reformed, he is not entirely opposed to the EU project, and his former position as Prime Minister has left him with some lingering popular appeal in spite of the corruption allegations which have dogged his campaign.
If Fillon manages to turn the election on its head in the final hour and clinch enough votes to move to the second round, the euro is far less likely to suffer losses than if either Le Pen or Mélenchon advance.
With so many variables at play, and around 30% of the electorate unsure of how they will vote, the French election has the potential to inspire significant euro volatility in the week ahead.
If you’d like to speak to one of our currency experts about how the French election could impact your currency transfers contact us today on +44 (0) 20 7847 9414 or email [email protected].