Sterling remained at its lowest level for a fortnight against the euro as investors around the world breathed a sigh of relief after Emmanuel Macron reached the final round of voting in the French Presidential election.
The pound fell by more than 1.5 per cent against the euro. At one point it reached lows of €1.1687, before recovering to around €1.175 in afternoon trading.
European markets surged today as they took heart from Macron's victory, with the prospect of a Marine Le Pen presidency seen as unlikely by most pollsters.
The Paris-based Cac 40 soared by more than 4.5 per cent at one point to reach its highest point since the global financial crisis, before retreating slightly.
Stocks across Europe shared in the gains, with the broad-based Stoxx 600 rising by more than two per cent before paring some gains. The FTSE 100 appreciated by more than two per cent and Germany’s Dax gained more than three per cent.
The euro surged to a five-and-a-half-month high against the dollar, briefly breaking the $1.09 mark against the US dollar before paring some of its gains.
Meanwhile the spread between yields on French and German 10-year government bonds narrowed to the tightest level since mid-December. The difference in benchmark government bond yields, which move inversely to prices, has in recent month represented the premium investors demand for higher political risk in France
Independent centrist Macron, who formed his En Marche! party only a year ago, will face the far-right National Front candidate Le Pen in the run-off vote on 7 May, pending official confirmation of the result.
France’s interior ministry reported Macron had gained 23.86 per cent of the first round vote compared to Le Pen’s 21.43 per cent. Only the top two candidates proceed to the next round of voting.
Francois Fillon, the candidate for the traditional Republicains party, won only 19.94 per cent of the vote, while left-wing candidate Jean-Luc Melenchon won 19.62 per cent – leaving the candidate of the ruling Socialist party, Benoit Hamon, floundering on 6.35 per cent. Fillon and Hamon added their endorsements of Macron after accepting defeat.
Macron will now face Le Pen in what is set to be a brutal final fortnight of campaigning, although polls indicate he is the overwhelming favourite to win.
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A National Front candidate has made the final round of voting before: Marine Le Pen’s father Jean-Marie faced Jacques Chirac in 2002, but was soundly defeated in the second round.
Bill Street, head of investments for EMEA at State Street Global Advisors, said: “Le Pen will almost certainly be defeated in two weeks time, and equities can continue to rally going into 2018 as non-existential risks can be absorbed. The global economy might not be booming, but growth is returning. Some of the moderate risk premia in the bond market will also disappear, and this would most likely benefit lower-quality assets the most.”
Investors have been assured by the long odds on a Le Pen presidency. The far-right candidate has alarmed markets throughout Europe with her promise to hold a referendum on membership of the euro, despite the large constitutional hurdles preventing France leaving the euro or the European Union.
However, the relief on markets has also overshadowed the scale of the upheaval in French politics delivered by Sunday’s vote.
Vincent Juvyns, global market strategist at JP Morgan Asset Management, said: “While this result was broadly expected, it is still historic: Les Republicains and the Socialist Party, which have dominated the French political landscape over the past decades, will be absent from the second round.
“The outcome of the second round remains unclear, but the “Macron—Le Pen” configuration is seen as the most market-friendly and this has been reflected in the investor reaction so far.”