French election: Euro steady as caution dominates ahead of too-close-to-call vote

Marine Le Pen, Republican Francois Fillon, Communist-backed Jean-Luc Mélenchon and centrist Emmanuel Macron are all polling extremely closely

Analysts are attributing the euro's resilience to a strong flash purchasing manager survey and indications that the more moderate centrist Emmanuel Macron has a solid chance of going through to the second round (Thomson Reuters Eikon)

The euro continued to hover near a three-week high against the dollar on Friday, but investors hailed caution ahead of Sunday’s first round of voting in a hotly contested French presidential election battle.

In late afternoon trading, the bloc's single currency was at $1.069, only marginally lower on the day, with analysts attributing its relative resilience to a strong flash purchasing manager survey as well as indications that the more moderate centrist Emmanuel Macron has a solid chance of going through to the second round of the race.

Still, caution is dominating across all corners of financial markets, with the National Front’s Marine Le Pen, Republican Francois Fillon, Communist-backed Jean-Luc Mélenchon and Mr Macron polling extremely closely.

Mark Dowding, partner and co-head of investment grade debt at investment company BlueBay Asset Management, said that a whole host of outcomes look possible considering how close the race appears to be.

He said that most of the realistic scenarios would likely be perceived as positive by markets, but that the danger would be “a Le Pen versus Mélenchon outcome, which could lead to some large risk-off moves on fears that the future of the monetary union could again be called into question”.

Moves in other major currency pairs were muted on Friday too, and economists at UniCredit said that they expect a “wait and see attitude” to prevail ahead of Sunday.

France’s CAC 40 was trading around 0.9 per cent lower mid-morning, after a shooting near the Champs-Elysees boulevard in Paris on Thursday night, for which Isis has claimed responsibility, left one police officer dead and others seriously injured.

Stock markets elsewhere across the continent were marginally down.

Strategists at UBS wrote in a note on Friday if Ms Le Pen faces and beats Mr Mélenchon in the second round of voting that is due to place on 7 May, European stocks could fall more than 7 per cent under their model.