Euro hits 2-week high on French far-right election lead

The euro reached a two-week high during Asian trading on Monday after the first round of France’s unexpected snap election put Marine Le Pen’s far-right National Rally (RN) party in the lead.

Despite RN’s success, it won a smaller share of the vote than some polls had projected, leaving the final outcome uncertain and investors anticipating further market volatility.

The euro climbed to a two-week peak of $1.076175, later settling at $1.075425, up 0.4 per cent. Analysts attribute this slight rise to relief over the absence of significant surprises and Le Pen’s narrower-than-expected margin.

The final result will hinge on the second round of voting and coalition decisions across France’s 577 constituencies. One poll even suggested the possibility of an absolute majority for RN.

The shock of the vote has unsettled markets, particularly because of the significant spending increases proposed by both the far-right and the left-wing alliance, which came in second. These proposals have raised concerns given France’s high budget deficit, prompting the EU to consider disciplinary measures.

The financial markets, which had calmed somewhat following the initial election announcement, saw renewed volatility.

French bond yields had surged to their highest levels since the eurozone debt crisis in 2012, and key French bank stocks fell sharply, contributing to a near 7 per cent decline in the Paris CAC 40 index. In contrast, European stocks were poised for a higher open, with Eurostoxx 50 futures up 1.18 per cent.

The political landscape in France remains uncertain, as candidates have until Tuesday to decide on their participation in the run-off. A high voter turnout on Sunday suggests a record number of three-way run-offs, which could favour RN more than two-way contests.

Analysts expect continued market instability due to the unpredictable election results. If alliances to block RN start to appear more credible, French bonds might recover, but the overall outlook remains fraught with uncertainty as France approaches the decisive second round.

Attribution: Reuters.