The Pound to Euro exchange rate (GBP/EUR) fell heavily at the start of a new week of trade on global foreign exchange markets.

However, as trade in London progresses we are seeing Sterling stabilise somewhat as focus turns away from France and the technical moves that the Macron win was always going to trigger fade.

The Euro was seen shooting higher on polls that showed the centrist Emmanuel Macron winning the first-round of the French presidential election.

The Macron win has subsequently been confirmed by France's interior ministry with over three-quarters of the vote being counted on our last check.

The GBP/EUR is quoted at 1.1794 at the start of the London session having gone as low as 1.1742 in Asia.

These levels were last seen before Sterling’s leap that came following the announcement of a general election by Theresa May six days earlier.

On Tuesday April 18 the Pound opened at 1.1801 and closed at 1.1969 as markets bet that an expected Conservative majority in Parliament will lead to a more oderly Brexit process.

Above: The Pound to Euro rate gaps lower towards trend-line support. Image courtesy of IG.

Analyst Bill McNamara at brokers Charles Stanley says Sterling's recent rise against the Euro appears to be unsustainable, "not least because of a likely rebound in the single currency, and a retreat from here is going to look like a failure at resistance."

However, the elections are not a done deal and we would expect the Euro's gains to be limited somewhat because the prospect of a Le Pen win in the final round cannot be completely negated.

The danger for Macron is Le Pen's supporters come out in force in the second round while his stay at home thinking it is a done deal. And, can Macron garner the support of the losing candidates?

These questions are likely to linger ensuring upside in the Euro remains capped.

"If Le Pen does pull off a majority vote in the final results or if she wins the second round of voting, this would come as quite a shock to markets and would see a boost for sterling-euro, likely retesting the key 1.20/1.21 levels," says Alexandra Russell-Oliver at Caxton FX.

Insurance Unwound, Euro Recovers

Jan von Gerich at Nordea Markets says the derivatives markets suggest considerable hedges were in place towards an unfavourable outcome, i.e. a Marine Le Pen win.

This was very apparent on the FX markets where the so called risk-reversals on EUR/USD pointed to extreme hedging positions in case of a weakening of the Euro.

“A significant part of these hedges will probably now be reversed, and the EUR/USD should see a jump towards 1.10,” says von Gerich.

The same action is seen happening in EUR/GBP which has also gone higher.

It is important to note that losses in GBP/EUR are limited to the 1.1780 region and if insurance has indeed been taken off the table then the worst might have passed for the Pound.

Gains in the Euro might be limited as Macron is not exactly a hot-ticket for the French economy.

Commentators suggest that he is an anti-establishment winner, but if you consider his policies, background and experience he is every bit the establishment candidate.

Indeed, is ‘the centre’ of any political movement not the embodiment of the status-quo?

As such this is not necessarily the best outcome for the French economy which needs significant and bold policy changes to push it into fifth gear once more.

And then there is Macron’s isolation from the main-stream parties.

“While the second round of the presidential election looks now a clear case, the selection of Macron implies a lot of uncertainty for the future and parliamentary elections in June. Macron will have a lot of work in front of him to convince voters and politicians especially from the Socialist Party but perhaps even more broadly to gain a majority in parliament,” says von Gerich.

Pound to Stay bid

That Sterling is seen recovering through the mid-morning session in London will be encouraging for bulls who believe the uptrend is not yet dead.

Indeed, analysts at Morgan Stanley have on April 24 briefed clients saying they are still buyers of the Pound.

"Political uncertainty is diminishing in the UK, while staying high within the Eurozone. We think GBP has become less sensitive to market expectations of “hard Brexit” vs “soft Brexit” and instead has moved on to assessing political uncertainty. The GBP rally after the announcement of early elections reflects this, with the upcoming vote seen as reducing the uncertainty over whether the prime minister would be able to pass any deal with the EU through the House of Commons," says a note from the bank.