Written by Gary Howes
British Pound to Euro exchange rate: 1 GBP = 1.1799
Euro to Pound Sterling exchange rate: 1 EUR = 0.84704
The Euro is likely to rally on the event of Emmanuel Macron being crowned the new president of France.
The question however is, to what extent will the currency move?
Some would argue, and we agree, that the move won’t be too dramatic.
After all a Macron victory is that have proven to be pretty good at their job.
In fact, a Le Pen win would constitute a ‘black swan’ event that would put the Brexit and Trump votes in the shade. It is highly unlikely.
Therefore, the Euro has absorbed the news and would therefore be unlikely to move higher.
However, there is a degree of risk-premium in the Euro – the most risk-averse of investors will have held some hedges against a Macron win and these will be closed after the event.
Closing a hedge requires the Euro to be bought, therefore it will rally.
However, some believe there is more risk-premium in the Euro than this and the currency will move further.
“The EUR rise across the board with EURUSD and EURGBP targeting 1.1050 and 0.8650 respectively,” says Rahul Khanna, FX Strategist for TraderMade. “This is because the market will breathe a sigh of relief by moving past a divisive figure like Le Pen.”
EUR/GBP at 0.8650 is 1.1560 in Pound to Euro exchange rate terms.
This would represent a big move if we consider the exchange rate !
So, if Khanna is right we are in for a big move.
Analyst Oliver Jones at Capital Economics also sees a big move on a Macron win being announced:
“Given how bonds reacted to the diminished probability of a eurosceptic candidate triumphing after the first round, the French-German 10-year government bond spread might decline to around 25bp if she loses.
“In that event, the euro could also gain ground against the dollar, as it did after the first round. Indeed, on the basis of Chart 2, it might strengthen through $1.12/€.”
Such a move in EUR/USD would transpire into an even bigger move in EUR/GBP than that envisioned by Khanna.
But I doubt the move in EUR/GBP will transpire. Such a fall is in itself a big risk for traders and if the wide market held such a view they would have already taken the currency down to such levels over recent days.
We would in effect be seeing GBP/EUR at 1.1560 on what is pretty much a guaranteed outcome.
So while some declines are likely, a monumental drop is not.
Turnout Low: Could Le Pen win?
We know the Euro will be in big trouble on the event of a Le Pen win, precisely because the market is fully-priced for the opposite outcome.
“Victory for Le Pen will see a mass exodus of capital into safe havens as the market will turn its focus on a possible weakening of the Euro-area. The French bonds will suffer massively and peripherals spread will also spike. JPY, CHF and USD will be buoyed by some margin,” says Khanna.
Hours ahead of the election result there is however one interesting report that has caught my eye.
According , a turnout of 65.3% was recorded at 17:00 local time (15:00 GMT) in an unpredictable campaign that has divided the country.
Abstention is seen as being one key to Le Pen’s chances as many suspect her supporters to be more motivated than the wider electorate.
The participation rate reported by the interior ministry for this election at 17:00 was more than six points lower than the 72% recorded at the same time in 2012 and nearly 10 points down on the 75.1% of 2007.
It is lower than all the elections back to 1981.
Analysts have said a high abstention rate may damage Macron’s chances