Currency Market Update June

Euro under pressure as French election draws near

There we were thinking it would be the UK election creating some volatility to currency markets in June when along came President Macron calling a snap election in France as his party suffered a defeat at the hands of  Marine Le Pen’s far-right National Rally (RN).

The first round of the French elections takes place on 30th June with the RN seen heading the polls but without enough seats to form a government. President Macron’s alliance is currently polling in third place. The fractured nature of the forecast vote will see French politics weigh on Euro in the coming days. The second, and final, French vote will occur on 7th July.

In the meantime expectations of a further interest rate cut at the next European Central Bank (ECB) meeting in July, following the first rate cut in June are increasing as German economic outlook appears to be worsening due to weak demand prospects.

US Dollar

This news combined with a stronger Dollar has led to a 2% decline in the EUR/USD rate in June alone. The Dollar has also recovered against the pound this week as the Fed reiterated a more hawkish stance with Fed’s Bowman suggesting there is growing justification to not cut rates at all this year.

In spite of this, investors are still pricing in 2 rate cuts from the Fed by year end with the first coming in September. Clearly this is up for debate leading to greater scrutiny of US data releases in the coming days and weeks.

The Pound

Returning to the UK, the pound continues its buoyant run, recently testing the 2 year high against the Euro. However, we have seen a modest decline this week as we are now just a week away from UK elections. According to polls, the Conservative Party is expected to suffer a heavy defeat against Labour, which will likely lead to further political uncertainty as we get used to a new government. In addition, we are also faced with economic uncertainty as the Bank of England (BoE) struggle to justify kicking off a policy easing cycle in the face of stubborn wage growth and sticky services inflation.

At the latest BoE meeting last week, Governor Andrew Bailey commented “We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.” The market has taken that to mean he is leaning towards an interest rate cut in August but much like the US, we will need to keep a close eye on inflationary pressures as we move through July.

For more information about how this news could impact your business going forward, please contact Pathfinder FX on 📞 01743 290 955