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French Presidential Election 2017

Macron French victory boosts Euro confidence


Date of publication: May 8, 2017 | Author: Tim Clayton

Macron French victory boosts Euro confidence, result priced in

The French Presidential election result confirmed that centrist Macron had beaten National Front leader Le Pen with close to 66% of the vote compared with support of 62-63% in final opinion polls.

The Euro strengthened as Asian markets opened with EUR/USD moving above the 1.1000 level for the first time in over 6 months. There were also Euro gains on the crosses with EUR/JPY, for example, at the highest level for close to 12 months.

The Euro was unable to sustain the advance and dipped back below the 1.1000 level, although the overall currency tone remained firm. The most important factor was that markets had already moved to anticipate a Macron victory given that opinion polls had consistently pointed to a comfortable victory.

Politically, there will be important uncertainties surrounding the French parliamentary elections with Macron still facing a tough task in winning parliamentary seats given that his En Marche party was only formed in 2016. There will also be uncertainty surrounding his choice of Prime Minister and whether Macron can secure an election pact with one of the major two parties.

Nevertheless, there will still be an important sense of relief over the election outcome, especially as it increases the chances of near-term stability. There will also be increased confidence that German Chancellor Merkel can secure re-election in September.

Economically, the ECB stance will be very important in the short term. There will be relief surrounding the French outcome with a reduced risk of capital outflows and renewed turbulence within the Euro area which will also lessen downside risks to the economy.

In this environment, there is likely to be a greater willingness to move towards a slightly less accommodative policy at forthcoming policy meetings. Comments on the UK Brexit process will also be an important element in the short term and will have a significant impact on both the Euro and Sterling.

Macron is very strongly committed to the EU and has indicated that he would take a tough stance on negotiations with the UK. He will, however, also want to maintain cohesion and avoid destabilising rhetoric which will lessen overall tail risks.

Overall confidence in Euro-zone assets should remain stronger in the short term with net capital inflows supporting the Euro outlook.

 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

 

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