The euro may have looked a bit optimistic early yesterday, but it faces a reality check today. The first round of the French election saw a clear victory for Le Pen’s far-right faction. Although the margin of victory was slightly narrower than expected, it also underscored the Macron government’s failure to appease the public.
The worry now is that we could see a hung parliament in France. There is a lot at stake as we head into the second round on July 7. The risks are perhaps reflected in the euro’s lack of confidence today.
The EUR/USD pair fell 0.2% to 1.0715, almost erasing the opening gap higher from yesterday. Meanwhile, EUR/GBP and EUR/CHF were both down 0.1% to 0.8480 and 0.9685 respectively on the day.
This is a difficult situation for traders to balance. On the one hand, the great political uncertainty in the region’s second-largest economy is not a good sign. There is a risk that this is a sign of what will happen in other countries in Europe as well. On the other hand, Le Pen has also promised to increase spending. This poses financial risks for France at a time when it is already under scrutiny from the European Union.