Euro rises after France’s first-round vote; yen fragile

Euro Rises Following French Election, Yen Struggles Near 38-Year Low

The euro climbed on Monday after the first round of France’s snap election showed the far-right party leading, though by a narrower margin than expected. Meanwhile, the yen struggled to break away from its near 38-year low.

Marine Le Pen’s far-right National Rally (RN) party won the first round of France’s parliamentary elections on Sunday, according to exit polls. However, analysts noted that the party’s share of the vote was smaller than initially projected by some polls.

The euro, which had fallen about 0.8% since President Emmanuel Macron called the election on June 9, rose 0.4% to $1.0756, having touched a two-week high earlier in the session.

“The RN actually performed a bit worse than expected,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “As a result, the euro rose modestly in early Asian trade because there might be less fear of more expansionary and unsustainable fiscal policies.”

The rise in the euro pushed the dollar slightly lower against a basket of currencies. The greenback was also affected by data on Friday showing U.S. inflation cooled in May, cementing expectations that the Federal Reserve will start cutting interest rates later this year.

Market pricing now indicates about a 63% chance of a Fed rate cut in September, up from 55% a month ago, according to the CME FedWatch tool.

Sterling and New Zealand Dollar

Against the dollar, sterling was slightly up, while the New Zealand dollar edged 0.12% higher to $0.6098. The dollar index fell 0.11% to 105.61, hitting a one-week low earlier.

“Should inflation continue to behave and incoming data align with the FOMC’s forecasts through the summer, the first 25 basis point cut could happen as soon as September,” said Michael Brown, senior research strategist at Pepperstone.

Yen Under Pressure

The yen struggled to gain ground against a broadly weaker dollar, dropping 0.1% to 161.03 per dollar, close to a 37-1/2-year low of 161.27 reached on Friday.

The Japanese currency reversed early gains after revised data showed its economy shrank more than initially reported in the first quarter. Additional data on Monday revealed that the business mood in Japan’s service sector soured in June due to higher costs from the lower yen, offsetting a boost in factory confidence and indicating weakness in consumption.

The yen has fallen over 12% this year, weighed down by stark interest rate differentials between the U.S. and Japan. Its recent decline past 160 per dollar has heightened investor alertness for potential intervention from Japanese authorities to support the currency.

Chinese Yuan

In Asia, the Chinese yuan, also affected by interest rate differentials with the U.S., fell 0.04% to 7.3204 per dollar in the offshore market. The onshore yuan last stood at 7.2679 per dollar.

The Chinese currency found some support from a private sector survey indicating that factory activity among smaller Chinese manufacturers grew at the fastest pace since 2021, driven by overseas orders. This followed official data over the weekend showing that China’s manufacturing activity fell for a second month in June, while services activity slipped to a five-month low.

“The PMIs for June were mixed but suggest that the recovery lost some momentum last month,” said economists at Capital Economics. “We think economic activity will continue to hold up relatively well in the coming months. While the latest property stimulus has done little to boost new home sales, fiscal stimulus and strong exports should continue to support growth, at least in the near term.”