Home Daily Commentaries European Parliament elections reignite bearish sentiment towards the Euro

European Parliament elections reignite bearish sentiment towards the Euro

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Wednesday 12 June, 2024

Daily Currency Update

The recent European Parliament elections have led to a resurgence in bearish sentiment towards the Euro, particularly driven by the rise in right-wing political risk, notably in France. As a result, the Euro has declined by over 1% against most currency pairs this week.


In contrast, the Pound has reached a two-year high against the Euro, with the exchange rate at 0.8446. This strength is attributed to steady wage growth in the UK, which is offsetting poor employment figures. The resilience in wage growth is dampening expectations of an interest rate cut at the upcoming Bank of England (BoE) meeting. Market participants will be closely monitoring the BoE's council members for any signals regarding the timing of future interest rate cuts.


In the US, markets expect the Federal Reserve to hold borrowing costs steady at 5.5% when they make their announcement later today. Recently, a volatile mix of economic data has slightly dented confidence that US inflation is heading back to the 2% target rate, complicating matters for the Fed’s council members.

 

Key Movers

In Europe, peripheral bond yields have risen sharply following dismal election results, which have led to a surge in right-wing parties. Consequently, President Macron has called for snap elections in France on June 30th. This development has further pressured the Euro, likely keeping the single currency on the back foot.

Markets overwhelmingly expect the Monetary Policy Committee (MPC) to keep UK interest rates unchanged at next week's meeting. Many MPC members are now focusing on the broader inflation outlook rather than individual inflation components to determine interest rate policy.

Core US inflation data, due for release later today, is expected to dip from 3.6% to 3.5%. Markets will also be keenly watching Fed rhetoric for guidance on the interest rate outlook, which many expect to be slightly hawkish, fueling the US Dollar's recent rally. Currently, markets anticipate the first US rate cut in August, though this expectation is evolving as more economic data is released.

Expected Ranges

  • GBP/USD: 1.2725 - 1.2775 ▼
  • GBP/EUR: 1.1840 - 1.1880 ▼
  • GBP/AUD: 1.9220 - 1.9265 ▼
  • EUR/USD: 1.0720 - 1.0770 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.