Even though analysts predicted a stronger chance for frontrunner Emmanuel Macron to win France’s 2017 Presidential election this week, the Euro has been persistently weak on Marine Le Pen jitters.
This has caused the Euro to Pound exchange rate to fall from the week’s opening levels of 0.85 to 0.84. EUR GBP currently trends near its worst levels since December 2016.
Anti-EU Presidential candidate Marine Le Pen has been catching up in polls with frontrunner Macron in recent weeks. Some analysts argue her chances of victory have doubled.
Le Pen has made anti-EU narrative a key part of her campaign platform. Investors widely believe that if Le Pen wins the French Presidency this year she will pull the nation out of the Eurozone.
The possibility that the Eurozone’s second biggest economy could pull out of the bloc is perceived by investors as one of the most significant long-term threats to the Euro itself.
However, last week saw centrist Presidential candidate Francois Bayou pull out of the race to back independent frontrunner Macron.
This increased Macron’s chances but was not enough to improve demand for the shared currency. TorFX currency analyst Josh Ferry Woodard commented on the next few months of Euro trade, comparing current concerns with the unexpected Brexit and Trump wins last year;
‘The single currency is likely to remain under pressure so long as Le Pen is still in the race, with investors keen not to be fooled three times in 12 months by polls playing down the chances of a populist outcome.’
Persistent French political concerns have left the Euro unable to benefit from this week’s Eurozone ecostats either, including news that Germany was the best performing major economy of 2016.
As a result, the Pound was easily able to push the Euro down throughout the week. Sterling’s strength has been due to early UK retail sales figures from February, indicating a rebound of activity after January’s poor results.
Higher inflation expectations among the UK public also increased demand for the Pound, with traders continuing to hope that the Bank of England (BoE) could tighten UK monetary policy in the foreseeable future.
However, the long-term outlook for the Pound isn’t entirely optimistic.
Analysts are warning that Britain’s retail sector will slow throughout 2017 as inflation rises and wage growth slows, squeezing consumers’ spending ability.
While there is optimism in underlying Eurozone ecostats and gloominess in Britain’s, the Euro to Pound exchange rate could continue to see weakness until after the final round of the France election in May.
If Le Pen wins the election, EUR GBP will plunge in the long-term. However, a loss for populism could see EUR GBP surge.
At the time of writing, the Euro to Pound exchange rate trended in the region of 0.84. The Pound to Euro exchange rate traded at around 1.18.
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