Daily Management Review

Le Pen's victory will entail Euro-Dollar parity


03/27/2017


The euro will fall to a 15-year low if Marin Le Pen becomes president of France. The currency’s reaction will be immediate and similar to that demonstrated by the pound after voting for the UK exit from the EU, reports Bloomberg.



Claude TRUONG-NGOC
Claude TRUONG-NGOC
Rate of the single currency will fall to $ 1 or less after victory of National Front’s leader, believe 23 of the 38 analysts surveyed by Bloomberg. At that, five of them expect a fall below $ 0.95. According to experts, the euro will respond to Le Pen’s victory with such a rapid decline since the Euro-skeptic candidate promises to hold a referendum on withdrawing from the euro zone and to redistribute the country's debt.

If the euro falls to parity with the dollar for the first time since 2002, it will mean a fall of more than 7% from the current level, to about $ 1.08. If the single currency reaches a level below $ 0.95, it will mean a fall of about 12%. Such a reaction will mirror dynamics of the pound sterling after Britain's decision to leave the European Union, and will consolidate a new trend when currencies take a hit from political upheavals.

During a similar survey before the referendum on Brexit last year, most economists predicted a drop below $ 1.35 in case of voting for secession from the EU. The forecast turned real after the vote, when the pound fell more than 10% to a 31-year low of $ 1.3229.

"The market reaction would be extremely negative, since risks of redenomination were taken into account only to a small extent", says an economist at Banque Pictet & Cie in Geneva, who expects the euro to fall below parity after Le Pen's victory.

Earlier, Jane Foley, Rabobank's senior currency strategist, said that if Marin Le Pen wins the French presidential election, the single European currency will collapse, and uncertainty at the financial markets will sharply increase.

"If Marin Le Pen wins the presidential election in France, the euro will come crashing down like a stone, we will see a sharp increase in uncertainty in the markets because of concerns about France's exit from the Eurozone. At that, If this situation further develops according to forecasts, Le Pen will lose in the second round of elections, in which case, I think, the markets will breathe a sigh of relief. The euro can expect a certain rally in May, after the second round. Anyway, currently investors are mainly concerned with probability of Le Pen’s victory and the market uncertainty as a consequence. "

Economists surveyed by Bloomberg estimated the probability of Le Pen’s victory at only 20%. At the same time, chances of independent candidate Emmanuel Macron are now standing at 61%.

Macron is expected to garner 26% of the vote in the first round of the April elections, with Le Pen supported by25% of voters, according to a survey conducted by Ifop. As the poll showed, the independent candidate will beat Le Pen in the second round of elections in May: they will gain 61.5% and 38.5% of the vote, respectively. 

source: bloomberg.com






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