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French President Macron calls early elections after the defeat by the extreme right in the European elections

After the European Union (EU) elections, the French President Emmanuel Macron announced early elections on Sunday in an unprecedented movement.

Macron said he would dissolve Parliament and call new legislative elections after exit polls showed that His alliance suffered a heavy defeat in the European elections against Marine Le Pen’s far-right National Rally Party (RN)..

Addressing the nation, he said that Lower house elections would be called for June 30with a second round on July 7.

Macron said, “this is an essential moment for clarification. I have heard your message, your concerns and I will not leave them unanswered… France needs a clear majority to act with serenity and harmony.”

“Far-right parties… are making progress across the continent. It is a situation I cannot resign myself to,” he said.

This comes after Macron warned on Thursday that the EU risked being “blocked” by a large far-right presence in the European Parliament following this week’s elections.

Market reaction

Renewed uncertainty about the political scenario in France weakens the Euro, dragging EUR/USD down 0.26% on the day, trading near 1.0770.

The Euro FAQs

The Euro is the currency of the 20 countries of the European Union that belong to the euro zone. 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 more than $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), headquartered in Frankfurt, Germany, is the reserve bank of the euro zone. 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 – tend to 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 made by the heads of the eurozone’s national banks and six permanent members, including ECB President Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are an important econometric data for the euro. If inflation rises more than expected, especially if it exceeds the 2% target set by the ECB, it is forced to raise interest rates to bring it back under control. Relatively high interest rates compared to their peers tend to 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 may 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. The economic data for the four largest economies in the eurozone (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the eurozone economy.

Another important release 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 wishing 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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