By Ray Wee
SINGAPORE (Reuters) – The euro rose on Monday after the first round of snap elections in France put the far right in front, albeit by a smaller margin than expected, while a cut in Japan’s first-quarter growth figures sent the yen lower.
Exit polls in France showed that the far-right National Rally party led by Marine Le Pen won the first round of French parliamentary elections on Sunday, although analysts indicated that the party won a smaller share of the vote than some polls expected in the beginning.
The euro, which has fallen about 0.8 percent since President Emmanuel Macron called elections on June 9, rose 0.24 percent to $1.0737, after touching its highest level in more than a week at $1.0749 earlier in the session.
“They (RN) actually performed a little worse than expected,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (CBA).
“As a result, we saw the euro rise modestly in early Asian trade, because we might actually have less concerns about a more expansive and unsustainable fiscal policy if the far-right party fares a little worse.”
The euro’s rise sent the dollar slightly lower against a basket of currencies, although the US currency was also suffering from data on Friday that showed US inflation slowing in May, reinforcing expectations that the Federal Reserve will begin cutting interest rates later in the month. this year.
Market prices now indicate a 63% chance the Fed will cut interest rates in September, compared with an equal chance a month ago, according to the CME FedWatch tool.
Against the dollar, the pound rose 0.01% to $1.2647, while it rose 0.04% to $0.6673.
The New Zealand dollar rose 0.14 percent to $0.6099. The index fell 0.02 percent to 105.70.
“If inflation continues to act on its own, and incoming data is consistent with the FOMC’s expectations, over the summer, the first 25 basis point cut remains on the table as soon as September,” said Michael Brown, senior research analyst at Pepperstone.
under pressure
The yen faced difficulties in achieving gains against the weaker dollar on a large scale, and fell in the latest transactions by 0.05% to 160.93 per dollar.
The Japanese currency reversed early gains in the session after revised data showed its economy contracted more than initially reported in the first quarter.
Analysts said that could lead to the Bank of Japan lowering its growth forecast in its new quarterly outlook due later this month and affect the timing of its next interest rate hike.
The yen has already fallen more than 12% this year, still weighed down by the stark interest rate differentials between the US and Japan, with its recent slide to the weaker side of 160 to the dollar keeping investors on high alert for any intervention by Japanese authorities to support the currency.
Elsewhere in Asia, the interest rate – also a victim of the stark interest rate differential with the United States – rose 0.02% to 7.2981 per dollar in the offshore market.
An official survey showed on Sunday that manufacturing activity in China declined for the second month in a row in June, while services activity fell to the lowest level in five months, keeping calls for more stimulus at a time when the economy faces difficulties to get back on its feet.
“The PMIs are definitely not good, and I think that consistently indicates that the Chinese economy is struggling to gain momentum despite government support,” said Kong of the Commonwealth Bank of Australia.
“This is fueling weakness in the yuan and lower Chinese government bond yields. Markets are also skeptical about whether the current policy support will actually translate into stronger economic activity, and I think that’s where we’re skeptical as well,” he added.