The EUR/USD remained steady at $1.084 after briefly falling to $1.08 as investors moved past the initial shock of France's election results. A leftist alliance unexpectedly took the lead, resulting in a hung parliament. Despite initial resilience, the French CAC 40 closed in the red, mirroring the performance of global equities, as France now faces challenging negotiations and uncertainty in forming a government. The OAT-Bund 10-year spread narrowed to 62bps, a fresh 3-week low, as this outcome is seen as more favorable compared to a potential right-wing government.
In economic data, Germany's trade surplus in May rose to €24.9 billion, a 4-month high, despite decreased demand for both imports and exports. Exports fell 3.6% month-on-month to a five-month low, while imports declined by 6.6% month-on-month, also reaching a five-month low. Additionally, ECB’s Knot joined other Governing Council members in endorsing current market expectations for rates in 2024 (40-42bps). With ECB rate cut expectations likely stable in the coming weeks and potential additional easing anticipated for September 2024, the Fed's actions will be a major driver for EUR/USD. Attention now shifts to the US CPI report due on Thursday.
The Euro index, which tracks the performance of the euro against a basket of nine leading global currencies, ended the day slightly lower due to a cautious market mood. EUR/GBP declined for the second consecutive day as political tensions weighed on the euro. Despite the ongoing turmoil in France, further advances may be limited as the pair approaches its 200-month SMA at €1.1870, a key moving average it has struggled to break since Brexit.
