The euro and most stock markets surged Monday after moderate candidate Emmanuel Macron won the first round of France’s presidential election and looked set to triumph in the run-off against far-right candidate Marine Le Pen next month.
Investors globally had been fearful that a wave of populism, which swept Donald Trump to the White House and saw Britain leave the EU, could lead to a win for the anti-European Le Pen and put the future of the bloc in doubt.
However, Macron is widely expected to gallop to victory over the divisive Front National leader and traders gave a huge thumbs-up, sending the euro flying above $1.09 at one point before paring the gains to $1.0850 from $1.0726 in New York on Friday.
The single currency also jumped to 119.46 yen from 117.07 yen.
In early European trade Paris surged 4.1 percent, London jumped 1.4 percent and Frankfurt gained 0.2 percent.
“Markets are happy to buy what they see as the fact—that 39-year-old Emmanuel Macron will be confirmed as the next president of the French republic in two weeks’ time,” Ray Attrill, head of FX strategy at National Australia Bank, said in a commentary.
The surge in optimism drove down the yen—considered a safe bet in times of uncertainty—which in turn lifted Japanese exporters.
France’s bonds, meanwhile, jumped, with the 10-year yield dropping to its lowest level in three months.
The yield spread between French 10-year securities and benchmark German bunds narrowed to the lowest since January. A place for Macron in the second round avoids investors’ nightmare scenario of a contest between the anti-euro Le Pen and the Communist-backed Jean-Luc Melenchon. This also boosted risk assets such as higher-yielding bonds from Italy and Spain, while France’s CAC 40 stock index climbed to a two-year high.
The euro surged to its strongest level in five months against the dollar before paring some of its gains as the market’s focus shifted to a proposed US tax cut.
“There was obviously concern that we might get two populist candidates facing off each other,” said Lyn Graham-Taylor, a rates strategist at Rabobank International in London. “It is a bit of a relief on the back” of the results. “We will give back a little bit of these gains through the course of the morning.”
Macron, a first-time candidate and political independent, had 23.8 percent in Sunday’s election and National Front leader Le Pen had 21.5 percent, according to results from the Interior Ministry based on 97.4 percent of votes counted. The result lowers risk for the euro zone after a year of polling upsets and political turmoil driving currency volatility, from the U.S. elections to Italian and British referendums.
French 10-year bond yield fell seven basis points to 0.87 percent as of 8:41 a.m. in London, having earlier reached 0.83 percent, its lowest since Jan. 18. The spread versus German bunds narrowed 16 basis points to 52 basis points, having earlier reached 47 basis points the least since Jan. 26.
