The euro experienced a decline on Monday following a surprising election announcement by French President Emmanuel Macron. This decision came in the wake of his significant loss to the far-right in the European Union elections. In contrast, the dollar remained stable ahead of the Federal Reserve’s meeting later in the week.
In early Asian trading, the euro dropped to $1.0764, its lowest point since May 9. It later settled at $1.0776, down by 0.24%, as investors grappled with the potential consequences of heightened political uncertainty in France, the eurozone’s second-largest economy, during a crucial election year.
The far-right Eurosceptic nationalists made substantial gains in the European Parliament elections, as indicated by an aggregated exit poll on Sunday. This outcome prompted Macron to take a calculated risk in an attempt to reaffirm his leadership.
Mansoor Mohi-Uddin, chief economist at the Bank of Singapore, noted, “The prospects of a far-right victory in France’s snap elections may keep the euro under pressure in the near term. But the exchange rate is still more likely to be influenced by this week’s U.S. inflation data and FOMC meeting.”
The European Central Bank had reduced interest rates the previous week, in a widely anticipated move. However, the bank provided limited guidance on future monetary policy, given that inflation remains above the target level.
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Meanwhile, the dollar index, which measures the U.S. currency against six major counterparts, stood at 105.09. This was the highest level since May 30, following a 0.8% rise on Friday. This increase was driven by data indicating that the U.S. economy added significantly more jobs than expected in May.
According to the data, U.S. nonfarm payrolls expanded by 272,000 jobs last month, surpassing economists’ predictions of a 185,000 job increase, as per a Reuters poll.
Ryan Brandham, head of global capital markets for North America at Validus Risk Management, commented on the recent trends in the U.S. labor market, he cautioned that the latest robust job numbers might slow down these discussions. He stated:
“Recently, the U.S. labor market data has been showing some signs of softening, supporting discussions of rate cuts in the second half of 2024. This result will likely take the steam out of that conversation. The Fed has shown patience in waiting for confidence that inflation will fully return to target before signaling rate cuts, and that caution seems warranted”.
Overall, the financial markets are closely monitoring both the political developments in France and the economic indicators in the U.S., as these factors are expected to play significant roles in shaping the near-term outlook for the euro and the dollar.