BENGALURU The euro is likely to fall about 5 percent to near 15-year lows and close to parity against the dollar in the immediate aftermath should Marine Le Pen win the French presidency in May, according to foreign exchange strategists polled by Reuters.
After falling more than 3 percent in 2016, the euro is up about 2 percent this year. But the poll of nearly 70 strategists showed on Thursday the currency is now expected to erase those gains over the next 12 months.
In the near-term, though, what happens during the French two-round presidential election at the end of the month and at the start of May is expected to drive the euro.
Bets are in favour of independent Emmanuel Macron to win the race but the far-right anti-European Union candidate -- Le Pen of the National Front -- could stage a surprise victory.
That possibility is heightened by a rise in nationalist sentiment worldwide as exemplified by Britain's vote last year to leave the European Union and Donald Trump's surprise U.S. election victory.
"(A) Marine Le Pen victory would significantly weigh on the euro as it is not priced in, and given that, it would (have) a very negative outcome for the future of (monetary union)," said Roberto Cobo Garcia, FX strategist at BBVA.
"Emmanuel Macron's victory is what the market is expecting. Thus, the impact of his victory would be positive but marginal."
If Le Pen were to win, the euro is expected to fall 5 percent immediately, according to the median of the near 40 strategists who answered an extra question. The most pessimistic view was for the single currency to lose about 15 percent.
"Markets will shoot first and ask questions later on a Le Pen win," said Gavin Friend, senior markets strategist at NAB.
The euro is otherwise forecast to drift lower against the dollar to $1.06 by the end of this month. Respondents then expect it to weaken to $1.05 in a year, a fall of almost 2 percent from $1.07 on Thursday.
Beyond the short-term outlook, the latest euro predictions were less pessimistic compared with last month. Even the calls for euro/dollar parity have dwindled on expectations the European Central Bank will pare back its expansionary policy.
But ECB President Mario Draghi said on Thursday there was no need to deviate from the central bank's policy path, which includes record-low interest rates and bond buying until at least the end of the year.
That suggests long-term expectations were driven by the view for the currency on the other side of the trade, the dollar.
DOLLAR DRIVES LONG VIEW
So far this year, the greenback has fallen against most major currencies on growing doubts about the U.S. administration's ability to deliver on any of the promised stimulus and tax cuts -- a big reason for the currency's gains since Trump's election victory in November.
"There is considerable uncertainty surrounding the timing, composition and magnitude of any fiscal stimulus. In our view, market participants may have priced in too much upside from President Trump and the Republicans in Congress," said Jean-François Paren, head of global markets research at CA CIB.
"While we do see the removal of overly burdensome regulations as a plus for growth, we expect little fiscal stimulus this year, nor is there any guarantee of a big boost in 2018."
Currency speculators have also cut their bullish dollar bets for the first time in four weeks, according to the latest positioning data.
That comes despite hawkish-sounding minutes from the latest U.S. Federal Reserve meeting, which showed most policymakers think the Fed should begin trimming its $4.5 trillion balance sheet later this year and was on track for two more interest rate hikes in 2017.
Still, expectations were for the dollar to gain slightly in the year ahead over most major currencies.
But a strong dollar view was based on some form of fiscal stimulus and tax reforms from the U.S. administration in the year ahead, according to almost 80 percent of 65 strategists who answered an extra question in the poll.
"Our base case includes modest tax cuts but no tax reform and only directed/symbolic trade protectionist measures alongside cautious Fed rate hiking, which to a large extent appear priced by markets," wrote Marvin Barth, head of FX strategy at Barclays, in a note to clients.
"Alternative scenarios of a policy package that includes tax reform or nothing at all are plausible and result in considerably different USD outcomes."
(For other stories from the FX poll:)
(Polling and analysis by Vivek Mishra and Indradip Ghosh; Editing by Ross Finley/Jeremy Gaunt)