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Will Fillon Quit French Presidential Race? EUR GBP, EUR USD Slide

A new poll has suggested Emmanuel Macron could triumph over Marine Le Pen in May’s second round of French Presidential elections. Trader relief has pushed the EUR GBP and EUR USD exchange rates higher, while French 10-year bond yields have dropped to a one-month low as investor confidence rebounds.

The latest poll, published on Sunday, suggests Macron would secure 61% of the second-round vote if he were to face off against Le Pen, who would claim 39%.

According to Odoxa/Dentsu-Consulting, who ran the poll, support for Macron has surged after veteran centrist candidate Francois Bayrou ended his campaign in order to form an alliance with the independent politician.

Another poll, conducted by Figaro/LCI expected Macron to secure 58% of the vote compared to Le Pen’s 42%. In the first round, Le Pen is expected to lead voting with 27% of the ballots – slightly more than Macron at 25%.

That Le Pen is expected to comfortably progress to the second round is nothing new; the far-right candidate has long been expected to get so far. But investors and the Euro were shocked in recent weeks when the favoured candidate, Francois Fillon, was hit by scandal.

Fillon is currently under investigation due to claims he used public money to pay his wife and two of his children for work they did not carry out. Although employing family is common practice for French politicians, Fillon is alleged to have wrongly paid out €900,000 to family members.

The scandal has crippled his chances of victory in the first round in April; a surprise considering he was predicted to go on to defeat Le Pen and claim the Presidency.

Although Fillon has thus far refused to bow out of the race, despite a previous pledge to do so should an official investigation start, speculation has ignited that he may do so today. This follows the news that he and his wife, Penelope, have been called in for questioning regarding the suspect payments.

Fillon has cancelled a public appearance last-minute and sources alleged he had held talks with his leading party members. He is expected to make a speech from his campaign headquarters later today – hence expectations that he is set to announce his withdrawal.

Indications that Le Pen still has no chance of winning the elections and therefore of enacting her plans to withdraw France from the Eurozone have pushed the Euro into a sharp rally. Euro Pound exchange rates are up 0.7%, helped by fears of a second Scottish referendum and confusion over the rights of EU nationals intending to come to the UK after Article 50 is triggered next month.

Reports have indicated that Theresa May is braced for Scotland to demand a second independence referendum, with the Prime Minister facing a potential tricky decision. She can refuse the demand, but doing so would be an incendiary move that could ignite public anger across Scotland. On the other hand, with Scotland having voted overwhelmingly in favour of remaining in the EU, a second referendum could yield a very different result to the first.

Pro-EU Scotland is unlikely to react positively to the other development currently causing the Pound to sink. Theresa May is expected to announce a cut-off date after which EU migrants travelling to the UK will not have an entitlement to remain in the UK permanently.

While the plan is also likely to guarantee the rights of the 3.6 million EU citizens who are already resident in the country, it could also put the UK government on a collision course with EU officials before the negotiations have even begun.

Theresa May ‘will be giving clarity by setting a clear deadline while the European Union looks increasingly muddled and mean-spirited,’ claimed Iain Duncan Smith, a prominent ‘Leave’ campaigner.

However, EU officials are likely to argue that this goes against freedom of movement treaties agreed to by all EU members. Officials may state that the cut-off period cannot be before the official date of departure as the UK is still considered a full member of the Union in the interim.

According to the Telegraph, a government source stated that ‘we have had some suggestion that the European Commission might attempt to force us to protect everyone who arrives up to the moment of departure.’ It seems the government is worried about a potential mass influx of immigrants just before the UK officially leaves, as the source also added ‘we could end up with half of Romania and Bulgaria coming here if we wait that long.’

Overall, the outlook for the UK remains cloudy and turbulent, with the investor sell-off of the Pound allowing EUR GBP to rack up significant gains. Euro US Dollar exchange rates have not advanced as far, but the common currency has still made solid gains.

US investors are on hold until this afternoon’s durable goods orders figures for January. After declining -0.5% in December, orders are expected to have grown 1.9% last month.

Investors will also be watching out for any comments on monetary policy when the Federal Reserve’s Robert Kaplan speaks in Oklahoma towards the end of the day.

At the time of writing the Euro Pound exchange rate was trading around 0.85, while the Euro US Dollar pairing trended in the region of 1.05.