The EUR began the first week of Q3 on a stronger note following an eventful weekend. The initial round of the French parliamentary election saw Le Pen’s far-right party in front of Macron’s centrist alliance, albeit with potentially fewer votes than expected. In early Asia trading hours, EUR/USD and EUR/CHF rose by 0.3% and 0.5%, respectively. The two significant events influencing the EUR this week are the second round of French parliamentary voting on July 7 and the preliminary Eurozone inflation report on Tuesday.
With three days remaining until the UK general election, international investors seem optimistic about a smooth transition to one of the two traditional governing parties. This sentiment is positive for GBP, gilts, and local equities. Opinion polls in Britain indicate a crushing defeat for the governing Conservatives after 14 years in power. However, Labour’s shift to a more pro-business, centrist position and potentially closer ties with the European Union under their leadership could strengthen GBP as the weekend approaches. Currently, GBP lacks directional momentum ahead of the election. GBP/USD is hovering below $1.27, while GBP/EUR has dipped under €1.18 for the first time in three weeks.
The first half of the year ended with US and Japanese equities near all-time highs, with political risks resurfacing. The USD marked its fourth consecutive weekly rise, as the first US presidential debate increased Trump’s winning odds to as high as 65%. This was positive for the USD, as a Trump victory could lead to inflationary pressures, prompting the Federal Reserve (Fed) to maintain higher interest rates for longer.
This week in the US, attention will be on the ISM PMIs for the manufacturing and service sectors (June) for signs of economic slowing. The main event will be Friday’s labour market report, with economists expecting a decrease in hiring from 272k to 185k. Additionally, the Fed minutes from the last FOMC meeting may provide insights into policymakers' rationale for revising the expected policy path from three cuts to one this year.
