EUR/GBP falls towards 0.8400 amid uncertainty over French elections

• EUR/GBP is exposed to 0.8400 due to multiple headwinds.
• The Euro weakens as French President Emmanuel Macron’s surprise call for early elections has resulted in political uncertainty.
• Steady wage growth in the UK has deepened fears that inflation will remain persistent.

The pair EUR/GBP seems exposed to further declines towards the 0.8400 round level support. The cross is under pressure amid the Euro’s uncertain attraction due to French President Emmanuel Macron’s decision to dissolve parliament and call early elections and the firmness of the Pound Sterling amid expectations that the Bank of England (BoE ) delay rate cuts.

Emmanuel Macron’s unprecedented call for early elections came after exit polls for the Eurozone parliamentary elections indicated that the general public wants a change in administration, resulting in political uncertainty as The centrist alliance led by Marine Le Pen was expected to suffer a defeat against the far-right National Rally led by Jordan Bardella. The seats won by the far right, with 32%-33%, were more than double that of the centrist alliance.

Meanwhile, the Euro struggles to gain ground, although the European Central Bank (ECB) refuses to commit to subsequent rate cuts. Last week, the ECB began its rate cut campaign after cutting the deposit rate by 25 basis points (bps) for the first time in five years, but is hesitant to commit to a linear downward path as it worries the Inflation’s progress toward 2% may stall due to prospects for continued wage growth. Financial markets currently expect the BoE to make just one more rate cut decision by the end of the year.

In the UK economy, interest rates look set to remain at their current levels for a longer period as wage growth remains steady despite weak labor demand. The UK labor market report for the three months ending in April showed that average earnings excluding bonuses, which is a measure of wage inflation, grew in line with estimates and the previous release of 6.0%. Wage growth has been a major driver of services inflation, which has been a barrier for Bank of England (BoE) policymakers to initiate a confident return to policy normalization.

The number of people employed declined consecutively for the fourth time as companies refrained from hiring due to weak household spending. The workforce was reduced by 140,000 workers, down from the previous release of 177,000. The ILO unemployment rate rose to 4.4% from estimates and the previous release of 4.3%.