Euro falls to month-long low as Macron calls French elections

By Ankur Banerjee

SINGAPORE (Reuters) – The euro fell on Monday as French President Emmanuel Macron called a shock election after being defeated in the European Union vote by the far right, while the dollar held steady ahead of the Federal Reserve meeting later this week.

The euro fell to $1.0764, its lowest level since May 9, in early trading in Asia. It fell 0.24% to $1.0776 as investors weighed the implications of renewed political uncertainty in the euro zone’s second-largest economy during a key election year.

Eurosceptic nationalists made the biggest gains in the European Parliament elections in Sunday’s vote, an exit poll showed, prompting Macron to take a risky gamble to try to restore his authority.

“The prospects of a far-right victory in France’s snap elections could keep the euro under pressure in the short term,” said Mansoor Mohi-Uddin, chief economist at Bank Of Singapore.

“But the exchange rate is even more likely to be influenced by this week’s US inflation data and the FOMC meeting.”

The European Central Bank cut rates last week in a widely publicized move, but gave little guidance on the outlook for its monetary policy as inflation still runs higher than inflation. objective.

The dollar index, which measures the U.S. currency against six of its rivals, was at 105.09, its highest level since May 30, after rising 0.8% on Friday following data showing that the The world’s largest economy created far more jobs than expected in May.

U.S. nonfarm payrolls rose by 272,000 last month, data showed, while economists polled by Reuters had expected an increase of 185,000.

Ryan Brandham, head of global capital markets for North America at Validus Risk Management, said recently that U.S. labor market data showed some signs of slowing, supporting talk of rate cuts in the second half of 2024.

“But this outcome will likely slow that conversation. The Fed has been patient in waiting until it is convinced that inflation will return fully to target before signaling rate cuts, and that caution appears warranted.”

The jobs data caused traders to once again change their expectations about when the Fed would cut rates and by how much. Markets are now pricing in a 36 basis point cut this year, compared to almost 50 basis points – or at least two cuts – before the jobs data.

The chances of a rate cut in September are now around 50%, up from around 70% Thursday evening.

The Fed is not expected to make any changes at its policy meeting this week, but the focus will be on comments from Fed Chairman Jerome Powell and changes to policymakers’ economic projections. US inflation data is also due on Wednesday.

“We suspect the midpoint will move from three cuts to less than two. A hawkish stance?,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The Bank of Japan is scheduled to hold its two-day monetary policy meeting this week, and is widely expected to hold short-term interest rates…

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