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EUR/USD weakens below 1.0850 as left-wing New Popular Front leads exit poll in French elections

  • EUR/USD is losing ground around 1.0830 in early Asian trading on Monday.
  • Polls suggested the latest round of French parliamentary elections pointed to a hung parliament, weighing on the Euro.
  • US job growth slowed in May.

The EUR/USD pair is trading lower near 1.0830 on Monday during early Asian trading hours. Political uncertainty in France following the second round of the French parliamentary elections on Sunday is putting some selling pressure on the Euro (EUR). Later on Monday, the Sentix Eurozone Investor Confidence for July will be released.

According to The Economist, exit polls indicated that the left-wing New Popular Front (NFP), led by Jean-Luc Mélenchon, appears on course to win a majority of seats in the second round of French parliamentary elections on Sunday. The NFP had secured at least 174 seats.

However, this would still be well short of the 289 seats needed to control the lower house. Meanwhile, President Emmanuel Macron’s centrist Ensemble alliance won 146 seats and Le Pen’s party was pushed into third place, gaining some 142 seats. The shared currency has attracted some sellers after exit polls suggested the latest round of French parliamentary elections pointed to a hung parliament.

Across the Atlantic, rising odds from the US Federal Reserve (Fed) following slow growth in US employment data could drag the Dollar lower and limit the pair’s downside. Data released by the US Bureau of Labor Statistics (BLS) showed that US Non-Farm Payrolls (NFP) rose by 206,000 in June, followed by an increase of 218,000 (revised from 272,000) in May. This figure was stronger than the estimate of 190,000.

Moreover, the unemployment rate rose to 4.1% in June from 4% in May. Average Hourly Earnings declined to 3.9% YoY in June from the previous reading of 4.1%, matching the market expectation. Traders will take further cues from the US Consumer Price Index (CPI) on Wednesday for fresh impetus, which is expected to decline to 3.1% YoY in June from 3.3% in May.

Euro FAQs

The Euro is the currency of the 20 European Union countries that belong to the Eurozone. It is the second most traded currency in the world, behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – generally benefit the Euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the Eurozone and six permanent members, including ECB President Christine Lagarde.

Eurozone inflation data, as measured by the Harmonised Index of Consumer Prices (HICP), is an important econometric data point for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, the ECB is forced to raise interest rates to bring inflation back under control. Relatively high interest rates compared to their peers usually benefit the euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the Euro. Conversely, if economic data is weak, the Euro is likely to fall. Economic data from the four largest Eurozone economies (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone economy.

Another important output for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

Source: Fx Street

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