The European single currency bounced back from a three-week low against the greenback on Monday, as the French election outcome showed a hung parliament, easing concerns over potential French exit from the eurozone.
French President Emmanuel Macron's centrist alliance and left-wing New Popular Front (NFP) alliance were projected to form the largest blocs in the upcoming negotiations, but neither would have a majority. The bounceback was among several surprises in projected results.
An absolute majority requires 289 seats. Forecasts from polling agencies indicated the left would get between 184 and 198 seats, the centrist alliance was expected to get 160 to 169 seats, while the RN and its allies 135 to 143 seats.
Ken Cheung, director of FX strategy at Mizuho Securities, said that “the shock of a far-right party gaining a majority was avoided in the short term, but the rise of left-wing parties and increasing political uncertainties could raise concerns over French fiscal deficits and eurozone stability in the medium term.”
This outcome is expected to result in policy uncertainty and potentially lengthy coalition talks, with tactical voting likely to significantly impact the final tally.
The euro traded up after the official election results came in.
The US dollar weakens
Simultaneously, the dollar dipped after disappointing U.S. jobs data raised bets for an imminent Federal Reserve rate cut.
The value of the dollar index, representing the strength of the U.S. dollar versus the euro, sterling, yen, and three other major rivals, reached a level of 104.95.
The U.S. nonfarm payrolls report showed that job increases were below projections for June, and the unemployment rate climbed up. Additionally, wages increased far below the Fed's target inflation rate.
These figures prompted traders to raise their bets for an interest rate cut from the Federal Reserve in September and December.
According to the CME Group's FedWatch Tool, there is approximately a 76% probability of a rate reduction during the September meeting, as opposed to the previously estimated 64% chance a week prior.
A downturn in the U.S. dollar's value occurred on Monday relative to the Japanese yen, falling short of its previous high at 161.96 recorded last Friday.
In contrast, the sterling gained 0.1% versus the greenback to reach its highest since June 12 at $1.2825.
The British pound exhibited growth following the successful election of the Labour Party and their replacement of the Conservatives, who had been in power for 14 years.
Elsewhere, the Australian dollar pushed to a six-month high against the U.S. dollar at $0.6741, while the Swiss franc strengthened against the euro and the greenback.
Meanwhile, Bitcoin has traded up, recovering from a recent decline in cryptocurrency markets.
The stock market
In Sintra, Portugal, where the European Central Bank (ECB) is holding its annual conference, both Christine Lagarde and Jerome Powell, presidents of the ECB and Federal Reserve, are set to address the audience.
The Bank for International Settlements has cautioned against increasing government debts in significant economies before upcoming elections. However, the organization's General Manager Agustin Carstens emphasized the importance of maintaining a solid foundation for economic recovery and stability.
European markets were mostly higher on Monday, with the CAC 40 index up in Paris, while London's FTSE 100 rose too.
U.S. stock futures pointed to a slightly higher open, with S&P 500 futures up 0.18% and Nasdaq Composite futures up 0.20%.
Although markets faced a complex political landscape in Europe and uncertainty over monetary policy, investors remained cautiously optimistic about the overall economic recovery and potential growth opportunities.