The Euro literally crushed the Sterling on the back of the French election outcome. Macron is the leading candidate in the polls and his victory in the round one has pushed the weekend upward gap of EUR/GBP to its highest level in more than 10 years.
The Euro is clearly a stronger currency here, and if Macron wins the second election round in May, we could see the Euro becoming even more stronger against the Sterling. Macron would make the euro zone stronger which would strengthen the currency. However, if Le Pen wins the election. We could see the biggest downward gap for the currency as it opens the currency to a lot of risk.
Another interesting factor is how the euro-sterling pair’s one month implied volatility (at the money) has crashed on the back of the current French election outcome. We do expect this to drop further if Macron becomes the winner of the round two. The EUR/GBP pair could bounce even further and the weekend gap for that could be even more stronger. However, if Le Pen wins the election, we expect the reverse of this trade.
