Euro gains as Far Right dominates French elections

EURUSD gained 0.50% and jumped to a more than two-week high near 1.0770 in Monday’s European trading.

The major currency pair strengthened as initial results of the first round of France’s parliamentary elections on Sunday showed that Marine Le Pen’s far-right National Rally is in a comfortable position, but with a smaller margin than projected and a significant correction in the US Dollar.

The uncertainty over RN gaining an absolute majority has significantly improved the Euro’s appeal.

“We might actually get less fears of more expansionary and unsustainable fiscal policy if the far-right party did a little bit worse,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

Now, investors will turn to the second-round runoff, scheduled for July 7.

On the monetary policy front, investors look for cues whether the European Central Bank will deliver subsequent rate cuts. The ECB started reducing interest rates in early June after maintaining a restrictive interest rate stance for two years to tame price pressures prompted by pandemic-led stimulus.

The major trigger for the Euro on Monday will be the preliminary German Harmonized Index of Consumer Prices (HICP) data for June.

Economists expect annual HICP in the Eurozone’s largest economy to rise at a slower pace of 2.6% from the prior release of 2.8%. The monthly Consumer Price Index (CPI) is expected to rise at a higher pace of 0.2% from 0.1% in May.

The scenario in which German inflation declines expectedly or at a faster pace will boost expectations of early rate cuts by the ECB, while hot numbers will ease the ECB’s subsequent rate cut hopes.

The other major trigger for the Euro will be the preliminary Eurozone’s HICP data for June, which will be published on Tuesday.