The euro surged to a 5-month high today after the first round of voting in France’s presidential election defied the worst case scenario predictions and gave Emmanuel Macron, the centrist candidate, the expected win. The far-right leader of the National Front party, Marine Le Pen, came second in Sunday’s vote as many polls indicated. However, with 97% of the votes counted, she was more than 2 points behind at 21.5% compared to Macron’s 23.8%. | The results boosted risk sentiment as Macron is perceived to be the most market-friendly candidate after the conservative Francois Fillon. Macron is proposing reforms to make the labour market more flexible and to cut income and corporation tax, as well as to deregulate the economy. France has one of the highest unemployment rates among the major advanced economies and has also lagged its peers in terms of economic growth after the financial crisis. Burgeoning government debt is another issue facing France and Macron wants to cut public spending by €60bn and reduce the public workforce by 120,000. | However, doubts remain about Macron’s ability to push through significant reforms through parliament given the unpopularity of such policies during his time as economy minister between 2014-2016 under the current Socialist government of François Hollande. Polls currently place Macron at over 60% in the second round of voting in two weeks’ time, giving him a strong lead over Le Pen. But the real test may come at June’s parliamentary election where it will be crucial for Macron’s En Marche! party to win a sizeable majority. | The En Marche! party, meaning onwards, was set up by Macron in August 2016, which subsequently led to his departure from the Socialist party. It may be difficult for a newly established party that currently has no seats in parliament to garner enough support at the June election despite Macron’s pledge to put forward candidates in all of France’s 577 constituencies. A small majority or an unstable coalition could weaken his economic agenda. | In the meantime, Le Pen is not likely to give up easily and will continue to push herself as the “people’s candidate”, while Macron’s past as an investment banker may work against him when touting himself as anti-establishment. | The next couple of weeks could therefore still bring a few surprises but the markets appear to have sharply lowered the odds of a French election upset on May 7. The euro jumped by almost 2% against the dollar at today’s open to hit a 5-month high of $1.0919, and against the yen, the single currency rose to a one-month high of 120.75 yen. The positive sentiment was also evident in the equities market with the Paris’ CAC 40 index soaring by 4.6% and the Frankfurt Xetra DAX by around 3%
Source XM