The euro and equity markets moved sharply higher this week as Emmanuel Macron and Marine Le Pen made it through to the second round of the French presidential elections.
Emmanuel Macron, of the En Marche movement, took 23.7% of the vote, while Marine Le Pen, the leader of the far right Front National, took 21.7%. Financial markets strongly favour Emmanuel Macron to win the final round of the French elections, to be held on 7 May.
The margin of victory Emmanuel Macron has over Marine Le Pen is seen as a positive by financial markets, who now believe that anti-EU candidate Marine Le Pen will be too far behind in the polling to become French President.
For the first time in modern history, there are no candidates from the mainstream centre-right or centre-left parties who made it to the second round, although both centre-right and centre-left parties defeated on Sunday are now giving their backing to Emmanuel Macron.
Marine Le Pen is seen as staunchly nationalist, and a threat to European stability should she become the President of France. She has proposed to hold a referendum on whether France should remain in the European Union, whilst the favourite to become French President Emmanuel Macron is pro-Europe.
The Monday morning market open saw the euro move sharply higher, breaching the 1.0800 level, and eventually reaching a five month high of 1.095 against the US dollar.
The risk-on theme spread into other currency pairs in foreign exchange markets, with investors selling traditional safe haven assets such as the Japanese yen and gold. The US dollar made a weekly high of 111.769 against the Japanese yen, before slipping back towards 111, still gaining 1.38% for the week.
The British pound also benefited from the French election result, with the GBP/USD currency pair remaining well supported by buyers towards the 1.2940 handle.
The French equity market also moved sharply higher on the news, surging to new 2017 highs, with the CAC40 Index increasing by 1.78% for the week as investors moved into French stocks, the CAC40 traded at it’s highest level in nine years, closing in on the 5,300.00 level.
The news was also welcomed by other stock markets across Europe, with the German DAX hitting an all time high of 12,518, closely followed by the FTSE MIB in Italy and the IBEX 35 in Spain.
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The European Central Bank (ECB) kept interest rates at 0% and current monetary policy unchanged as its President Mario Draghi delivered a mixed speech on the state of the European economy. Mario Draghi noted that the Eurozone recovery was strengthening, with risks diminishing, but the inflation outlook remained subdued, so at present the ECB said there was currently no pressure to consider tightening monetary policy.
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