Euro hits one-month low after Macron calls snap election

by Jonathan Adams

The euro hit a one-month low against the dollar of $1.0748, and was 0.35% lower at $1.0764

The euro dropped sharply on Monday, hit by political uncertainty after gains by the far-right in voting for the European Parliament on Sunday prompted French President Emmanuel Macron to call a snap national election.

The uncertainty in France adds one more element to what will be a busy week for markets with key U.S. inflation data due on Wednesday, the same day as a Fed policy meeting, and then the BoJ rounding off the week.

The euro hit a one-month low against the dollar of $1.0748, and was 0.35% lower at $1.0764.

The common currency’s decline was across the board, it shed 0.33% on sterling and hit a new near two-year low of 84.51 pence, and was 0.22% lower on the Swiss franc, and reached a seven-week low of 0.9639 francs.

The election results over the weekend from the European Union largely showed a pick up in support for the right wing parties, generally what was expected, but the surprise element is that Macron has reacted by calling a snap election, so that makes the market more nervous, according to Lee Hardman, senior currency analyst at MUFG.

He said: That’s reinforced the sell off in the euro that we saw at the end of last week, and the other factor on top of that is the U.S. payrolls report was very strong, which increases the risk of a hawkish Fed policy signal when they meet on Wednesday.

The Fed will conclude its two-day policy meeting on Wednesday. Data on Friday showed non-farm payrolls rose by 272,000 jobs last month.

Markets are now pricing in 36 bps of Fed cuts this year compared to around 50 basis points – or at least two cuts – before the jobs data.

The paring back of expectations for rate cuts has been supporting the dollar for much of 2024, with the Japanese yen suffering particularly.

The dollar was 0.15% higher on the Japanese currency at 157 yen, having climbed 0.7% on Friday after the payrolls print. With sterling steady at $1.2722, the dollar index was 0.08% higher at 105.15. It hit a one-month high of 105.3 in early trading.

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