How France's snap election is impacting FX markets

Far-right French leader Marine Le Pen has said she will not call on French President Emmanuel Macron to resign if her party wins the snap parliamentary elections. Commerzbank AG Head of FX Research Ulrich Leuchtmann joins Catalysts to break down the news and how markets should prepare for the snap election.

"I think the general perception of the market is, yes, it can get more complicated, especially for crisis times if they come up somewhere in the future. But this is only a problem at the margin from the FX market perspective. And I think the market is not pricing in any catastrophic risk at the moment on the political side in Europe," Leuchtmann explains.

He adds that "euphoria regarding the euro" may become a problem: "What would happen if we would see a new eurozone crisis like in 2010, 2012? Would new, more euro-skeptic governments be willing to create bailout mechanisms as they did pass then? And if not, what would be the consequence of the crisis?" He adds that the concern isn't about the short-term future of the euro, but the euro in a time of crisis.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

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French far right leader Marine Le Pen said she will not call for French President Emmanuel Macron's resignation if her party wins during the snap parliamentary elections.

So how should the markets be reading the proposed cohabitation between the two?

For more on this, we bring in or look com bank head of FX research or thank you so much for being here today.

I want to start on what we are seeing in France because I'm curious if this is a risk pattern that investors need to be watching out for specifically with regards to France and the EU.

Is the potential for France to diverge from the EU more broadly, already priced into markets?

Or is that a risk investors are not adequately price for?

I think this is not fully priced because I think that the general perception of the market is yes, it can get more complicated for for especially for crisis times if they come up somewhere in the future.

But, um, this is only a problem at the margin from the FX FX markets perspective, and I think the market is not pricing in any catastrophic risk at the moment.

On the political side, in Europe.

So then talk to us about that risk and what exactly?

I guess that fallout could potentially look like Well, look, I mean, the euro is a political project.

We don't have a common currency because of some natural processes, but because of political decisions.

And it's a political landscape shifts more towards scepticism about, uh, Europe.

Then then it's certainly something where the market is asking.

Well, what's the future for the euro?

And I mean we all saw in in in past crisis times that leaving the euro is is nearly not an option under any circumstances, but less Uh uh, euphoria regarding the euro is creating problems on its own because look, what would happen if we would see a new eurozone crisis like in 2010 2012?

Would the would new, more eurosceptic governments be willing, uh, to create bailout mechanisms as they did pass then?

And if not, what would be the consequence of the crisis?

Therefore, it's not about your future tomorrow or in a couple of months time or even in a couple of years time.

It's about this.

This what happens in crisis times