The euro dropped 0.3% to $1.0764 in early Asia trade on Monday, hitting its lowest level in a month, following French President Emmanuel Macron’s unexpected call for a legislative election after a poor performance in the European Union vote against the far-right. The euro also fell 0.35% against the British pound to 84.60 pence, its lowest since August 2022.
Eurosceptic nationalists made significant gains in the European Parliament elections, while the Greens and Liberals lost ground. In Italy, Prime Minister Giorgia Meloni’s Brothers of Italy party won the most votes, cementing its popularity.
Macron’s decision introduces political uncertainty in France, the eurozone’s second-largest economy. If Marine Le Pen’s National Rally wins a parliamentary majority, Macron would lose control over domestic affairs. This uncertainty is unsettling markets during a key election year, with Britain’s general election on July 4 and U.S. elections in November.
Analysts warn of potential negative impacts on market confidence, particularly in France. Italy’s 10-year government bond yield gap over Germany, a risk indicator, will be closely watched. The broad STOXX 600 share index, near record highs, could also be affected.
The euro, down 2.5% against the dollar this year, has been influenced by interest rate outlooks in the euro area and the U.S. Last week, the European Central Bank cut rates for the first time in five years. Concerns over France’s high debt levels and political uncertainty may further impact its economy, especially after Standard & Poor’s downgraded France’s sovereign debt rating last month.
