The Euro Pound (EUR GBP) exchange rate began to downtrend this morning as polls show that the race for the French Presidency is closer than first thought.
With just under a week to go until the first round of voting and up to a third of the French electorate apparently still undecided pollsters are now predicting that any of the top four contenders could be in with a chance to make it to the second round of voting.
Up until just recently most observers had predicted that the run off would come down to a battle between independent, centrist Emmanuel Macron and far-right, Eurosceptic Marine Le Pen.
However EUR investors have been shaken by the sudden surge in support for radical left-wing candidate Jean-Luc Mélenchon, who has shot up in polls to close in on the scandal hit François Fillon over the last couple of weeks.
While the polls show that Macron and Le Pen are still leading with around 22% to 23% of the vote, with both Mélenchon and Fillon pulling in numbers around 19% to 21%, the election is no longer a two horse race, sowing uncertainty for EUR GBP.
Markets have be particularly unsettled by the rise of Mélenchon as the veteran left-winger is also a committed Eurosceptic, suggesting that anti-EU sentiment may be more widespread in France than initially thought.
Mélenchon is also facing criticism for his radical policy plans, which includes massive public spending funded through taxing salaries above €400,000 at 90% and plans to quit Nato, the World Trade Organisation, the International Monetary Fund and the World Bank, which his party sees as capitalist institutions complicit in a failing global economy.
His uncompromising leftish agenda has even lead France’s financial newspaper, Les Echos to dub him ‘the new French risk’, which Mélenchon responded to in kind on his blog, writing;
‘Once again, they are announcing that my election win will set off a nuclear winter, a plague of frogs, Red Army tanks and a landing of Venezuelans.’
Meanwhile the Pound’s gains this morning have been trimmed slightly by the announcement from the UK’s Financial Conduct Authority (FCA) that it would be spending £2.5m to create a ‘Brexit task force.
In its statement the market regulator also warned of the growing uncertainties of Brexit and its impact on firms and consumers, with the FCA saying;
‘Brexit creates a number of uncertainties with the potential to affect the UK and European financial markets, with potential knock-on effects for the UK economy, tax, balance of payments, and the value of sterling.’
With the UK’s split from the EU threatening to strip the City of London of its status as the financial centre of Europe as it runs the risk of losing its vital passporting rights in negotiations, the FCA will face an uphill battle in order to convince investors that the UK remains a stable market to commit to.
Looking ahead the EUR GBP exchange rate is likely to tumble further on Wednesday as the Eurozone’s latest CPI is expected to show that the inflation rate tumbled from 2% to 1.5% last month, following a notable drop in fuel prices in March.
However Sterling may struggle to exploit the weakness in the Euro this week as a lull in domestic data following the Easter weekend leaves the Pound directionless until Friday’s Retail Sales figures.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.84 and the GBP EUR exchange rate was trending around 1.18.