Euro rallies, then steadies after Macron beats Le Pen in French election

Euro coins  displayed against the French flag.
Euro coins displayed against the French flag. PHOTO: REUTERS

PARIS (BLOOMBERG) - The euro erased initial gains against the US dollar to trade little changed after centrist Emmanuel Macron defeated Marine Le Pen in France's presidential elections, an outcome that will allay investor concerns about the nation being led out of the currency bloc.

The shared currency traded at US$1.1000 as of 7.15am in Tokyo on Monday (May 8) after earlier rising 0.2 per cent to US$1.1023, the highest level since November. Against the Singdollar, it was trading at S$1.54.

Euro's gain was more muted than the reaction that followed Mr Macron's first-round win, when the euro rose almost 2 per cent within 15 minutes of the open. With polls consistently giving Mr Macron the lead in the run-up to the second round, markets had largely priced in a victory for the centrist, limiting the scope for a more sizable relief rally.

Mr Macron beat the anti-euro candidate Le Pen by about 65 per cent to 35 per cent - a bigger lead than predicted by surveys before the election. While expected, Ms Le Pen's defeat removes a cloud that has been hanging over the shared currency for most of this year, and will strengthen its longer-term outlook, according to analysts.

"The question now is whether real money investors, hesitant to commit more to euro-zone assets 'just in case,' will now do so with more gusto," Mr Ray Attrill, head of foreign exchange strategy at National Australia Bank Ltd in Sydney, wrote in a note on Monday.

NAB still expects the euro to grind higher in the coming weeks and months partly in anticipation of the European Central Bank now expressing more confidence that downside risks to the euro-zone economy have further receded.

The outcome of the vote "should support the euro, although markets were already expecting Macron to win", Mr Athanasios Vamvakidis, head of G-10 currency strategy at Bank of America Merrill Lynch in London, said in e-mailed comments.

UniCredit, which currently expects the shared currency to finish the year at US$1.10, is likely to revise its forecast higher if the second round passes without any surprise, strategists including Vasileios Gkionakis said in a note to clients before the vote. Nomura Holdings, and Bank of America Merrill Lynch both expect further gains for the euro, with the Japanese bank looking for a rebound to at least US$1.15 in the next three to four months.