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Euro sees off Macron victory with a gallic shrug

The impact of individuals on markets is a tricky area.

Sometimes, the effect is pretty clear. The resignation of the prickly Greek finance minister Yanis Varoufakis in 2015 prompted an immediate rally in the country’s stocks and government bonds. That is the markets’ way of saying “don’t trip up on your way out”.

Similarly, sterling got a decent kick higher when Andrea Leadsom folded on her efforts to lead the Conservative party last summer.

So why isn’t the euro heading to the moon now that centrist pin-up Emmanuel Macron has been elected president of France? The euro did jump once the result became clear, reaching over $1.10, but it has since pulled back to a two-week low.

Some see the prospect of a delayed reaction. After all, the defeat of Marine Le Pen clears away a huge obstacle for cautious investors inclined to bulk up on European assets and gives the markets space to concentrate on when the European Central Bank will start considering a trim to stimulus efforts. Have patience, and wait for the euro to hit $1.14 or so, the argument goes.

Clearly, though, that is not working out so well at the moment. One reason is that the markets saw this coming. It was abundantly clear that Mr Macron would win, particularly in the final two weeks of the campaign. Even back in April, bets against the euro were shrinking fast.

Another partial explanation is that this week’s dip in the euro is in fact the highest form of flattery.

Mr Macron’s win allows the euro to resume its on-again, off-again role as a so-called funding currency. It is steady, with low interest rates that make it cheap to borrow to finance other more adventurous bets. And with an EU political meltdown now off the immediate agenda, those adventurous bets are more appealing. Under this analysis, the immediate pop higher in the euro is as good as it gets.

Volatility in the currency is already well below its five-year average. Alas, for anyone hoping for the crushing calm in currency markets to dissipate, it looks set up for the euro to continue a long dull streak for some time yet, stuck in a tug of war between inflows from cautious investors and outflows from thrill-seekers.

katie.martin@ft.com