Euro's Brief Reprieve Fades Amid Rising U.S. Yields and French Election Uncertainty
The euro saw a brief recovery after the first round of the French election, but this was quickly overshadowed by political uncertainty on both sides of the Atlantic. The election results aligned with expectations, with the far-right National Rally party unlikely to achieve an outright majority, suggesting a hung parliament is likely. This scenario initially boosted French-linked assets and supported the euro, but the high degree of uncertainty prevents substantial confidence in further euro gains. There’s still a slight chance that the National Rally could secure a majority, with the second round of voting results expected on 7 July.
In the United States, the push for higher yields has gained traction since the presidential debate, with the benchmark 10-year Treasury yield approaching early June highs at 4.48%. The growing likelihood of a Donald Trump presidency has prompted investors to reassess the implications for trade and fiscal policies, leading to higher yields. This increase in U.S. yields has dampened the euro’s initial rise. EUR/USD has now stalled, influenced by U.S. yields and lingering French election risks.
Currently, the EUR/USD pullback is capped at 1.0718, the level marking the weekend gap. A drop below this could see the pair move towards the 1.0650-1.0670 range, which includes several recent lows. Although the French election results were not as negative as feared, ongoing uncertainty and the small but present risk of a far-right majority create significant barriers to sustained euro strength.
