Euro Rises as French Election Indicates Hung Parliament
GBP
GBP/USD has advanced and is presently trading at 1.2814 (interbank). GBP/EUR is quoted at 1.1822 (interbank).
The Pound continues to strengthen following the resounding victory of the opposition Labour Party in the UK general election, potentially ending the volatile 14-year reign of the Conservative Party.
Despite headline inflation returning to the target rate of 2% annually, uncertainty persists regarding the Bank of England's stance on interest rates. Financial markets currently assign a 50% probability to the BoE initiating rate cuts starting from the August meeting.
Investors will closely monitor Thursday's release of the UK's monthly Gross Domestic Product (GDP) and May's factory data, with expectations for a 0.2% expansion in the UK economy after a stagnant April.
Today’s Events (GMT):
17:15 - MPC Member Haskel Speaks
EUR
EUR/USD has risen to 1.0844 (interbank), as the euro rebounds from early losses following Sunday’s second round of parliamentary elections in France.
The left-leaning New Popular Front emerged dominant in the National Assembly after Sunday's election, preventing the far-right National Rally from gaining expected power after the first round. The New Popular Front secured 182 seats, compared to 168 for Emmanuel Macron's coalition Ensemble and 143 for the far-right Rassemblement National and its allies.
However, France now faces a hung parliament, signalling political instability in the eurozone’s second-largest economy. Negotiations between the Centralist Alliance and the Left Wing are anticipated for the allocation of ministries and the election of a new Prime Minister. Jean-Luc Mélenchon has proposed French PM Macron's resignation in favour of the left wing to manage economic affairs.
This week will focus on inflation data from several Eurozone states.
Today’s Events (GMT):
07:00 - German Trade Balance (May) - Actual: 24.9B vs Forecast: 19.9B
USD
The dollar index, which measures the currency against a basket of other major currencies, traded largely flat at 104.577, consolidating after a near 1% slump last week.
The dollar has steadied following weak U.S. payrolls data on Friday, which heightened expectations for the Federal Reserve to commence interest rate cuts. Friday's US Non-Farm Payrolls (NFP) exceeded median forecasts with 206,000 net new jobs added in June. However, growth in US Average Hourly Earnings for the year ending June slowed to an expected 3.9% year-over-year, while the U.S. Unemployment Rate rose to 4.1%, marking its first increase since December 2021.
This week will provide further insight into U.S. interest rate expectations through key consumer inflation data and Federal Reserve Chair Jerome Powell's two-day testimony before Congress.
No significant events are scheduled for today
CAD
USD/CAD is currently trading at 1.3635 (interbank) in today’s session.
Last week, Canada's unemployment rate rose to 6.4% in June, surpassing expectations of 6.3% and reaching its highest level since January 2022. Additionally, the country shed 1,400 jobs in June.
These developments underscore concerns at the Bank of Canada (BoC) that elevated interest rates are exerting pressure on the labor market, prompting discussions about potential rate cuts to support economic recovery. Canada's 10-year government bond yield has dipped below 3.53%, reflecting anticipations of a more accommodative stance from the central bank.
Data releases from Canada are light this week.
No significant events are scheduled for today
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