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How Could the Outcome of Sunday’s French Vote Effect Pound Euro Exchange Rates?

  • Pound Euro Exchange Rates at 1.19 – Pair near best 2017 levels
  • Investors Overlook Poor UK Data – General election optimism keeps Pound high
  • GBP Forecast: UK Public Sector Net Borrowing – Tuesday data could influence Pound
  • EUR Forecast: French Election in Focus – Results of Sunday’s first round to drive GBP EUR

Pound Euro exchange rates ended last week’s European session relatively near their best levels, as investors hesitated to buy the Euro ahead of Sunday. Sunday sees the French public take to the polls in the first round of the market-gripping French Presidential election.

GBP EUR gained around over a cent and a half during last week’s trade, rising from the week’s opening level of 1.17 to 1.19. Wednesday saw the pair hit its best levels since July 2016.

Pound (GBP) Remains Sturdy despite Warnings of Slowing UK Economy

Last week saw the Pound surge, as investors reacted to news that the British public would be heading back to the polls much sooner than expected – on the 8th of June.

UK Prime Minister Theresa May announced that a snap general election would be held, with the aim of improving UK stability by obtaining a public mandate.

May was unelected when she succeeded David Cameron following the Brexit vote last year, which has been a major point of contention for her opponents during the early stages of the Brexit process.

Markets are hoping that if May’s Conservative party expands its Parliamentary majority, this will help May to make the Brexit process even smoother for Britain.

Some analysts have even speculated that May could use a potential larger majority to negotiate a softer Brexit, though others have argued she will instead have less opposition to her ‘hard Brexit’ plans.

Overall though, lasting optimism towards the upcoming UK election was strong enough for investors to overlook Britain’s March retail sales results – which came in well below expectations.

The retail sales report increased warnings among analysts that Britain’s economy was beginning to slow down, as consumers reined in spending due to rising inflation and slowing wage growth.

Euro (EUR) Jitters Reflect Market Anxiety

Despite strong Eurozone data in recent weeks, demand for the Euro has been highly limited as the 2017 French Presidential election draws near.

The French Presidential election is being seen by some investors as a referendum on the Eurozone itself. With two pro-EU candidates and two anti-EU candidates all seeing strong performance in opinion polls, the election has become a highly unpredictable four-horse race where almost any outcome is possible.

In order of most to least popular, the first round’s main contenders include pro-EU centrist Emmanuel Macron, anti-EU far-right Marine Le Pen, pro-EU conservative Francois Fillon and anti-EU far-left Jean-Luc Melenchon. Macron and Le Pen typically poll at around 22-25% each, with Fillon and Melenchon following at 18-20% each.

Evidently the first round race is extremely close and the results of the first round will have huge implications for the second round’s potential outcomes – as well as the short to long-term Euro outlook.

Due to the massive market focus on the French Presidential election, Euro trade has been jittery and investors paid little mind to Friday’s PMIs from Markit. Eurozone print PMIs all came in above expectations, indicating the bloc’s economy was becoming increasingly healthy.

Pound Euro Exchange Rates to React Significantly to French Election News on Monday

The first round of the French Presidential election will have come and gone by the time European markets open on Monday morning and investors will be waiting with baited breath to act on the results.

Analysts have continuously called the first round ‘too close to call’, especially after last year’s highly surprising Brexit and Trump votes. As a result, all bets are on and any outcome is being considered possible.

This includes the most market-safe outcome, which sees both pro-EU candidates Macron and Fillon advance to the second round – as well as the ‘nightmare scenario’ in which both Le Pen and Melenchon make it through.

The second round will be held on the 7th of May and will see the two most popular choices in a one-on-one run off vote. The winner of the second round will be France’s next President.

If both Le Pen and Melenchon, vocal Eurosceptics, make it to the second round, bets of a ‘Frexit’ will soar and the Euro will plummet leaving GBP EUR far higher next week.

The possibility of a ‘Frexit’ has been a hot topic this year. As France is one of the Eurozone’s biggest and most influential member states, the possibility the nation could withdraw from the Euro has been perceived as one of the biggest possible threats to the shared currency’s future.

A common scenario entertained by analysts sees pro-EU Macron and anti-EU Le Pen advance to the second round, where moderate citizens from the left and right will vote Macron over Le Pen giving him a clean victory.

If the first round ends with these two winning, the Euro will recover slightly next week on hopes of a Macron win. However, many other combinations remain possible and there is no doubt this will be the biggest focus of movement in Pound Euro exchange rates next week.