EUR flows: EUR slightly softer after French election
EUR a little softer, mainly versus CHF, after Left Alliance unexpectedly the largest party after the French election. But parliament still looks deadlocked as expected
The main news over the weekend was the surprise victory for the left-wing alliance in the second round of the French parliamentary elections, with the right-wing RN, who were first in the first round, relegated to third place, with Macron’s liberal alliance in second. This was both unexpected and expected. Unexpected in that the left-wing alliance was not expected to be the largest group in parliament. But expected in the sense that parliament is deadlocked, since the Left Alliance is still a long way short of an overall majority, and is unlikely to be able to create an effective coalition with the Liberals.
The EUR is marginally softer after the election, with the France/Germany yield spread a little higher. While it is no surprise that parliament is deadlocked, the win for the Left perhaps creates a slightly greater danger of expansionary fiscal policy. EUR/CHF is showing the main reaction, down around 30 pips to 0.9680, but there is no major move and we doubt there will be much followthrough. Otherwise there isn’t much change in the major pairs since Friday, although the AUD is sustaining a slightly positive tone after the gains on Friday following the softer US employment report. There isn’t any data of note on today’s calendar, but expectations of BoJ tightening this month may have been set back a little by softer than expected Japanese cash earnings data for May released overnight. But Japanese yields and USD/JPY are not much changed from Friday.