Euro Rises as French Far-Right Wins Fist Round; UK Elections in Focus
GBP
GBP/USD has risen and is currently trading at 1.2681 (interbank). GBP/EUR is at 1.1781 (interbank).
UK GDP (QoQ) figures have been revised upward, showing a 0.7% expansion in the first quarter, up from the previous quarter's 0.6% growth. This represents the strongest growth in over two years and has led to an increase in the UK's 10-year Gilt yield to 4.17%, reducing expectations of rate cuts.
The upcoming general election on Thursday is expected to bring volatility to Sterling. According to the latest exit polls, the Opposition Labour Party is likely to win over the Conservative Party led by UK Prime Minister Rishi Sunak.
Traders anticipate a return to stability after significant political turmoil during the Conservatives' 14-year rule and speculate that Labour leader Keir Starmer could strengthen trade links with Europe.
However, the extent of Starmer's potential majority in Parliament remains uncertain.
Today’s Events (GMT):
09:30 - Manufacturing PMI (Jun) – Forecast: 51.4
EUR
EUR/USD is currently trading at 1.0765 (interbank).
The Euro strengthens as investor sentiment improves amid Marine Le Pen’s National Rally confirming its status as France’s leading political force in the initial round of legislative elections, marking the highest turnout in three decades. Although Le Pen’s party, The National Rally (RN), secured a clear but not definitive victory, uncertainty prevails ahead of the second round of voting on July 7, according to France 24.
This morning, HCOB's final Purchasing Managers' Index (PMI) for German manufacturing fell to 43.5 in June from 45.4 in May, confirming a preliminary flash estimate and remaining below the 50 level that indicates contraction. Additionally, HCOB's Eurozone Manufacturing PMI came in at 45.8, marking a 2-month low.
Tomorrow, the Eurozone is set to release June inflation data following Germany’s inflation report later today, with economists anticipating a slight deceleration in both headline and underlying measures after a May uptick.
On Thursday, the ECB is scheduled to publish the minutes of its June meeting, during which it cut interest rates for the first time since September 2019.
Today’s Events (GMT):
09:00 - German Manufacturing PMI (Jun) – Forecast: 43.4
09:00 - Manufacturing PMI (Jun) – Forecast: 45.6
13:00 - German CPI (YoY) (Jun) – Forecast:2.3%
20:00 - ECB President Lagarde Speaks
USD
The dollar index, measuring the currency against a basket of other major currencies, is currently at 105.62.
Last week, the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation, rose by 2.6% year-over-year in May, down from 2.7% in April, meeting market expectations. Core PCE inflation also increased by 2.6% year-over-year in May, down from 2.8% in April, in line with forecasts.
Investor focus this week will centre on Friday’s nonfarm payrolls report, which is anticipated to provide fresh insights into when the Federal Reserve might begin cutting interest rates. Economists expect the U.S. economy added 189,000 jobs in June, following a stronger-than-expected gain of 272,000 the previous month, underscoring the labour market’s resilience.
Earlier this month, the Fed maintained unchanged rates and deferred potential rate cuts to possibly as late as December, awaiting more conclusive evidence of inflation returning to the central bank's target or signs of labour market moderation.
Today’s Events (GMT):
14:45 - Manufacturing PMI (Jun) – Forecast:51.7
15:00 - ISM Manufacturing PMI (Jun) – Forecast: 49.2
CAD
USD/CAD is currently trading at 1.3672 (interbank).
Last week, Canadian month-over-month (MoM) GDP grew by 0.3% in April, meeting market expectations and rebounding from the previous month's stagnant growth.
Inflation in Canada remained elevated in May, casting uncertainty on the Bank of Canada's (BoC) upcoming interest rate decision. Deloitte's Economic Outlook for Summer 2024 forecasts the BoC to delay a second rate cut until September, followed by another in December. Rate cuts are projected to continue throughout 2025, aiming for an eventual overnight rate of 2.75% by the end of next year.
Additionally, Brent crude has increased by 0.3% to $85.29 a barrel, while West Texas Intermediate crude (WTI) rose by 0.4% to $81.84 a barrel.
This week, market attention will turn to the latest Canadian employment figures scheduled for release on Friday.
No significant events are scheduled for today
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