Following the French Election last weekend, supporters of the European Union were relieved to see Emmanuel Macron's victory in the election. Macron's Victory showed France's dedication to a United Europe, and helped alleviate any threats to the European Union. As populist movements gain momentum in the West, many were concerned that France would elect Marine Le Pen, whose right wing politics supported France leaving the European Union and ditching the euro.
As we have discussed many times in this magazine, political uncertainty can be one of the most damaging influences on a currency's value.The threat of her victory, however remote of a possibility it seemed to many, kept the value of the euro low against pound sterling and the US dollar. As we have discussed many times in this magazine, political uncertainty can be one of the most damaging influences on a currency's value. Le Pen's possible, though unlikely, victory, caused much uncertainty surrounding the euro, not only because her win would be a threat to the European Union, but because she has actually vocally spoken out in favor of France no longer using the euro.
Surprisingly, pro-European Union Macron's win did not bolster the value of the euro, as many anticipated. Why is this? Many believe that a Macron win would result in an immediate gain for the currency that inched close to US dollar parity earlier this year.
Explaining the Value
So why is it that the euro did not gain much value after Macron's win? Though 2016 showed us two surprising victories with Brexit and Donald Trump, support for Macron over Le Pen was overwhelming - to the point that is likely that many investors did not bet against the currency the way they may have before Brexit or the US election.
Another reason may be that the euro, which is meant to be a "funded currency," is slowly returning to its normal levels. The euro's low interest rates are meant to make it an appealing currency for investments and growth. With Le Pen's loss, the euro loses much of the threat against the currency, allowing it to gain back its typical slow, but volatile, movement - which will encourage more investors to use the currency in major deals.
The US dollar continues to enjoy its place in the DXY, the US Dollar Index, which measures the value of the US dollar against a basket of currencies, including euro, yen, pound sterling, Canadian dollar, Swedish krona and Swiss francs.
Though the US dollar has generally been riding high since the election of Donald Trump, it has not been without its low points. This week, following the dismissal of FBI Director James Comey, the dollar lost some value and both the pound and yen gained on the currency.
Despite these small losses, investors continue to have faith in the American currency, believing it to be a healthy investment as all signs point to a robust economy in the United States, including rising interest rates for the currency.