Key points:
On Monday, the euro rose following the first round of France’s snap election, which put Marine Le Pen’s far-right National Rally (RN) party in the lead.
However, the margin was smaller than initially projected. This development came as a relief to markets concerned about potential expansionary and unsustainable fiscal policies from a stronger far-right presence.
Marine Le Pen’s RN party won the first round of the parliamentary elections, but with a smaller share of the vote than some polls had predicted.
This result led to a modest rise in the euro, with EUR/USD trading at $1.0737, up 0.24%, after touching a one-week high of $1.0749 earlier in the session. The underperformance of RN reduced fears of aggressive fiscal policy, thereby supporting the euro.
The rise in the euro had a slight downward effect on the dollar, with the dollar index (DXY) dipping 0.02% to 105.70. This decline was also influenced by U.S. inflation data showing a cooling in May, which bolstered expectations for a Federal Reserve interest rate cut later in the year.
Picture: Euro on the rise, trading at 1.07483 on the VT Markets app.
The Japanese yen faced challenges, declining 0.05% to 160.93 per dollar. This drop followed revised data indicating a greater-than-expected economic contraction in the first quarter, potentially leading to a cut in the Bank of Japan’s growth forecasts and affecting the timing of future interest rate hikes.
The yen has depreciated over 12% this year due to significant interest rate differentials with the U.S.
Also read: Japanese yen nears 38-year low as markets eye intervention and US inflation data
In China, the yuan in the offshore market (USDCNH) rose slightly by 0.02% to 7.2981 per dollar. However, economic data revealed continued struggles, with manufacturing activity declining for the second consecutive month in June and services activity hitting a five-month low. These figures underscore the need for further stimulus as the Chinese economy grapples with regaining momentum.
The current market sentiment reflects cautious optimism for the euro, tempered by ongoing concerns about economic stability in Japan and China. The trajectory of inflation and economic data through the summer will be crucial in determining the likelihood of a Federal Reserve rate cut in September.
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