Euro Exchange Rates Recover as Macron Extends Lead on Le Pen

• Pound to Euro exchange rate today: 1.1739, 24-hour low: 1.1708, 24-hour high: 1.1819
• Euro to Dollar exchange rate today: 1.0628, 24-hour low: 1.0551, 24-hour high: 1.0631

The broader Euro exchange rate complex firmed through the course of the first day of what promises to be a busy week for foreign exchange markets as political uncertainty related to the French presidential election abates.

French independent candidate Emmanuel Macron would easily beat far-right leader Marine Le Pen in the second round of the country's presidential election in May, according to two new surveys.

A poll by Odoxa for Dentsu Consulting and cable channel France 2 shows Le Pen losing to Macron in the May 7 run-off by an increased margin of 20 points.

The polls come a week after we reported the Euro to be under pressure as Le Pen was seen closing the gap on her rivals for the second round.

Pollsters believe Macron has been buoyed by the alliance announced last week with centrist politician Francois Bayrou, which has enabled him to move ahead of conservative candidate Francois Fillon in the first round.

According to a Figaro/LCI poll released on Sunday, February 27 Macron will beat Le Pen in the runoff with 58% of the vote versus 42%.

The pollsters said Le Pen will lead in the first round with 27% of the vote, up 2% from the previous poll, closely followed by Macron with 25%, up 4% from last poll.

Looking ahead, the Euro might have further recovery potential from here.

"It may sound foolhardy given the experience of Trump and Brexit, but we think markets are overpricing the probability of a Le Pen victory in the second round,” says Lisa Lignos at RBC Capital Markets in a note seen by Pound Sterling Live.

Analysts at RBC Capital reckon there is only a 0.1% probability of Le Pen winning and therefore the Euro is weaker than it should be.

Macron Lays out his Economic Agenda, Strives for Deeper European Fiscal Union

Meanwhile, Macron in an interview with Les Echos outlined his macroeconomic agenda over the weekend.

It includes moderate expenditure reduction, small tax cuts for corporates, no tax hikes for households and a capital expenditure programme.

Fiscal policy is disciplined without shock retrenchment, also aimed at making fiscal integration more appealing to Germany.

“In general, we think Macron, unsurprisingly, has chosen a ‘centrist approach’, which in the French context means a social-democratic, pro-European path. A lot of the technical details of his ambitions - which could benefit potential growth - have yet to be clarified,” says Gilles Moec, Europe Economist at Bank of America Merrill Lynch Global Research in London.

Moec believes Macron’s fiscal restraint in his agenda is not "an end in itself" but a way to help convince Germany that a proper institutional overhaul of the Euro area is needed, with some form of fiscal union.

Macron mentioned "an investment programme worth hundreds of billions" at the European level.

He strove to find himself at equidistance of Fillon's shock therapies and Hamon's rejection of the European fiscal rule-book.

“Still, Macron has decided against reducing unemployment benefits or reducing the overall generosity of the pension system. We think this reflects a reluctance to engage in a frontal controversy with the unions on these two contentious issues, in the hope of easing negotiation on labour market flexibility,” says Moec.

Interestingly, the justification of respecting the 3% limit for deficits in his interview was to convince Germany of France's credibility to push for fiscal union in the Euro area.

This confirms that France has a clear path to chose - a more complete disengagement from Europe with Le Pen, or a deeper engagement under Macron.

We would imagine those opposed to further European engagement will only become more emboldened under Macron, particularly if his policies fail to bring a measure of prosperity.

Outside of politics, economic fragmentation is a concern for the single currency.

This week markets expect German CPI to top 2% for the first time since 2012.

"Against this, the ECB QE program persists, limiting the scope for nominal rates to edge higher. This is keeping real rates in check and should remain a headwind for the EUR as political pressures build," says Richard Kelly, Head of Global Strategy at TD Securities in London.