Serrari Group

The euro hit a one-month low on Monday, declining 0.44% to $1.0753, as political uncertainty surged following French President Emmanuel Macron’s call for a snap legislative election. This move comes in the wake of significant gains by far-right eurosceptic nationalists in the European Parliament elections, prompting Macron to seek a stronger mandate.

This political upheaval in France has unsettled investors, contributing to the euro’s more than 2.5% slide against the dollar this year. The uncertainty in Europe contrasts sharply with the economic outlook in the United States, where the dollar remains strong. Recent U.S. job data showed an increase of 272,000 nonfarm payrolls in May, surpassing expectations and reducing the likelihood of near-term rate cuts by the Federal Reserve.

Charu Chanana, head of currency strategy at Saxo, highlighted the dual pressures on the euro: “The euro has faced a double blow from robust U.S. jobs data and political instability in France, adding to the currency’s downside risks after the European Central Bank’s rate cut last week.”

The ECB’s recent rate reduction aimed at combating inflation, which remains above target, offered little guidance on future monetary policy, leaving markets uneasy. Meanwhile, the dollar index, which measures the U.S. currency against six major rivals, rose 0.18% to 105.25, approaching a one-month high. Market expectations for the Fed’s rate cuts this year have been recalibrated, with the probability of a September rate cut dropping from around 70% to 50%.

The euro’s decline was also reflected against other major currencies, hitting its lowest since August 2022 against the British pound and easing 0.2% against the Japanese yen. The yen, trading at 157.13 per dollar, remains close to a 34-year low, with the Bank of Japan expected to maintain its ultra-low interest rates in its upcoming policy meeting.

Sterling remained relatively stable, trading around $1.27145 after touching a one-week low earlier. Market focus now shifts to upcoming U.S. inflation data and the Federal Reserve’s meeting, where statements from Fed Chair Jerome Powell will be closely watched for any changes in economic projections.

Moh Siong Sim, a currency strategist at the Bank of Singapore, emphasized the cautious market sentiment: “Investors are waiting for the inflation report and the Fed meeting for clearer direction. The key will be the dot plot, indicating the projected rate cuts.”

As these developments unfold, the global financial landscape remains sensitive to political events in Europe and economic indicators from the United States, with the euro’s trajectory hanging in the balance.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

11th June, 2024

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