Written by Euro gains despite strong result from the National Rally party
France’s National Rally party confirmed expectations by winning the highest level of support in the first round of the country’s parliamentary elections, ahead of the left-wing New Popular Front coalition and miles ahead of Macron’s centrist alliance. National Rally's leader Marie Le Pen has literally won round one of the fight, but nothing has been decided yet as the countdown to the second round, and final one, of elections has already started.
Le Pen is clearly aiming to achieve a majority by winning 289 seats in the next parliament and make President Macron’s life difficult until 2027, when the next presidential elections are scheduled for. However, the left-wing coalition and Macron’s alliance are now weighing whether to support each other's candidates in Sunday’s second round, which could prove successful and potentially stop Le Pen's party from achieving the crucial majority.
European stock markets have opened in the green today and the euro has gapped higher again against the US dollar as the French opposition parties’ seemingly unified front against Le Pen has been seen as a positive step. However, should this effort fail and Le Pen et al manage to achieve a parliamentary majority, there is scope for significant underperformance of the euro across the board.
German inflation next; focus also on ECB forums
Amidst these developments in France, the market will have to digest a rather busy schedule, especially in the euro area. The preliminary inflation report from Germany will be published later today with the eurozone aggregate figures coming on Tuesday. There is a small possibility of an upside surprise today, but these inflation prints are unlikely to change the outcome of the July meeting since the ECB hawks remain very uncomfortable about the June rate cut. As President Lagarde mentioned at the last ECB gathering, the ECB needs to see a plethora of data confirming the disinflation process in order to cut rates again.
Interestingly, the annual ECB forum on Central Banking starts today in Sintra, Portugal with Lagarde holding the introductory speech later today. There will be a barrage of speeches from central bankers over the next three days, including comments from various Fed officials with Chairman Powell participating in a panel discussion tomorrow.
Key US data week as Biden’s future in tatters
The holiday-shortened week across the pond starts on a high note with the release of the June ISM manufacturing survey with the crucial non-farm payroll report coming on Friday. The key point of discussion though in the US is still the recent presidential debate and more specifically President Biden’s performance. Speculation is rife that he could eventually be forced to step down with vice-president Kamala Harris being the frontrunner to replace him.
Yen remains under pressure
Despite the ongoing dollar weakness and a barrage of comments from Japanese government officials, the dollar/yen pair remains above the 160-yen level. It is evident that the market is testing the BoJ, but the mixed data is not giving the green light to Governor Ueda et al to respond appropriately using monetary policy. Market intervention remains the other option for the BoJ, with arguable results at best.
By XM.com
