The Euro jumped more than two cents against the dollar this morning as the market reacted to the results of yesterday’s French presidential election.
Centrist Emmanuel Macron made it through to the second round ahead of the far-right candidate Marine Le Pen.
Mr Macron is now the favourite to win the presidency, with polls predicting a win of at least 20 percentage points.
The Euro spiked from $1.07 to a five-month high of $1.093 this morning in reaction to the news – through it has since fallen back to $1.084.
It also rose sharply against sterling, increasing 1.2 per cent to reach 0.85p.
Meanwhile French bonds jumped, with the yield on 10-year bonds falling by 10bps to 0.821 per cent.
European equities and bonds have also rallied, led by French banking stocks. The Cac 40 – France’s main index – is up almost 4 per cent, with each of the 40 stocks rising.
The FTSE 100 is also up over 1 per cent.
But as markets breathed a sigh of relief, analysts warned that they should not get too carried away.
Anna Stupnytska, global economist at Fidelity International, said: “Le Pen could still potentially win the second round.
“It is probably too early for markets to see a big relief rally just yet or indeed, for the ECB to send any signals on tapering its bond purchase programme this week.”
The next round of the election will take place on Sunday 7 May and will be the first one to be contested since 1958 without either of France’s two major parties.
François Fillon, the conservative candidate came third while the Socialist Party candidate, Benoît Hamon, won just 6 per cent of the vote.
David Zahn, head of European fixed income at Franklin Templeton, said that on paper the result was a “foregone conclusion”.
But he warned markets to “expect the unexpected”.
Mr Zahn said: “In our view, a Macron victory would likely produce a rally in French government bonds in the short term.
“However, in the longer term, we think his policies would not be as positive, so therefore that could be negative for French government bonds over time.
“Macron’s pro-EU tendencies would likely be positive for the euro and that also means peripheral government bonds would probably do well should he win.
“From a financial market perspective, I would say a Le Pen victory in May is probably the worst scenario.”
damian.fantato@ft.com
