As the results of the first round of the French presidential election came through the Euro surged higher across the board.
Markets were encouraged by the relative accuracy of pollsters’ predictions, as centrist candidate Emmanuel Macron secured roughly 24% of the vote.
While National Front leader Marine Le Pen also proceeded to the final run-off this failed to particularly concern investors, with opinion polls giving Macron a 2:1 lead over the far-right candidate.
As analysts at Nomura noted:
‘Looking through the history of second-round polling since the 1980s, even if we see the typical narrowing of 5% or so it will not be enough to worry the market. The large leads Mr Macron has in the second round in excess of 25% provide the market with that comfort as it is more than double the typical margin of error for polling leads.’
Although the Euro US Dollar exchange rate soon shed some of its initial gains the pairing remained on a bullish trend during Monday’s European session.
Even so, the single currency may struggle to maintain its uptrend over the course of the week as focus turns to the latest Eurozone inflation data and European Central Bank (ECB) policy meeting.
Policymakers are unlikely to express any particular hawkishness at this juncture, which could leave the Euro vulnerable to downside pressure in the wake of the meeting.
However, if inflationary pressure picks back up or the ECB shows any signs of debating the tapering of its quantitative easing program the EUR USD exchange rate could find some fresh support.
With risk appetite strengthening in response to the French vote the appeal of the US Dollar has diminished, meanwhile.
Investors see little particular reason to favour the ‘Greenback’ at this juncture, particularly as the odds of a June Federal Reserve interest rate hike have weakened sharply in recent days.
As confidence in the outlook and underlying strength of the US economy mounts the US Dollar has slumped, despite existing home sales showing a solid uptick on Friday.
However, if domestic data proves to be generally positive in coming days the EUR USD exchange rate may struggle to hold onto all of its election-based gains.
Forecasts point towards a modest decline in April’s consumer confidence index, though, which could offer markets further reason to sell out of the lower-yielding US Dollar.
With global geopolitical tensions still elevated the general mood of risk appetite may struggle to sustain itself, particularly if relations with North Korea continue to deteriorate.
Any negative political developments could see the ‘Greenback’ return to a stronger footing.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was on a bullish run at 1.08. Meanwhile, the US Dollar Euro exchange rate was slumped around 0.92.