UK Edition
Euro surges towards six-month high on French election relief
The euro surged to its highest level in almost six months after early projections indicated that the run off for the French presidency would come down to a second-round duel between independent centrist Emmanuel Macron and far-right leader Marine Le Pen.
Investors cheered the early projections, which were announced an hour before foreign exchange markets opened in Australia. The single currency, which soared by more than 2pc to $1.09395 against the US dollar in early trade, marking its highest level since mid-November, was last up 1.1pc at $1.0845.
Macron, a pro-European Union ex-banker and economy minister, came out on top with 23.75 per cent of the vote, with Ms Le Pen, the far-Right Front National leader, just behind on 21.53 per cent..
Deutsche Bank macro strategist Sebastien Galy said the outcome was “a perfect scenario” for financial markets.
Dean Turner, economist at UBS Wealth Management, said: “If these projections hold true, there will be some relief among investors that a mainstream candidate made it through to the second round.
“As things stand, Macron is on course to be the next French president, so it is likely that we see a recovery in risk appetite toward French and other European markets.”
Currency markets were under pressure in the build up to the election amid fears two anti-EU candidates would qualify to the second round. However, far-left contender Jean-Luc Mélenchon and right-wing candidate Francois Fillon were both eliminated from the race.
E-mini futures for the S&P 500 climbed 0.8 percent in early trade, while yields on 10-year U.S. Treasury notes rose almost 8 basis points to 2.31 percent.
Japan's Nikkei jumped 1.3 percent as the yen retreated, while MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent.
"The rise of the euro and risk appetite rebounding is understandable and this should also see yields in Europe fall, spreads to Bunds tighten and stocks rally," said Tim Riddell, an analyst at Westpac.
"However, such gains are likely to be contained when markets reflect upon the marked shift away from the "establishment" and just how effective the new president may be," he added.
Meanwhile, France’s blue-chip index, the CAC 40, which underperformed its European peers on Friday, as investors retreated from taking risky bets ahead of the election vote, is expected to enjoy a relief rally on Monday.
However, Mr Turner cautioned: “The relief may prove to be short-lived though as markets will still be alert to the possibility of a Le Pen victory in the second round. Although at this stage it seems unlikely, this campaign has thrown up many surprises already.
“The stakes for the economy and markets are markedly high. In an election dominated by surprises, Macron’s commanding lead in the second round polls may do little to alleviate market anxiety in its entirety.”
Meanwhile, the euro rallied 1.5pc against the pound to 85p per euro and hit a five-week high against the Japanese yen of 120.64, up 3pc on the day.