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The euro is under pressure today as traders digest last night’s EU election results, and a shock parliamentary election being called in France. Political uncertainty has knocked the single currency to a one-month low; it’s down half a cent this morning to $1.0753. Against the pound, the euro has dropped to a near two-year low.
European stock markets are set to open in the red, too. The euro lost ground after France’s president, Emmanuel Macron, announced he will dissolve parliament and call snap legislative elections after his allies suffered a crushing defeat to Marine Le Pen’s far-right National Rally (RN) in Sunday’s European parliament elections. It was also a bad election for German chancellor Olaf Scholz, whose Social Democrats scored their worst result ever while the far-right Alternative for Germany (AfD) secured second place.
Although right-wing parties made significant gains across Europe, Commission president Ursula von der Leyen was able to declare that “the centre is holding”, with candidates from her centre-right European People’s party securing the most seats. But mainstream parties did lose seats overall, which will complicate Von Der Leyen’s bid for a a second five-year term at the helm of the EU commission.
Macron made his shock move after his centrist list, headed by MEP Valérie Hayer, scored just 15% in the European poll, less than half the 31.5% tally booked by RN, whose lead candidate was the party’s president, Jordan Bardella.
Analysts say it’s unprededented in modern French politics for a president to call an early parliamentary election from a position of weakness. Macron, who still has three years of his presidential term to serve, may want to put RN under more scrutiny, and present French voters with a clear choice – either a pro-European, pro-Ukraine, centrist position, or the far right alternative.
Mujtaba Rahman, managing director for Europe at Eurasia Group, explains: "Only just over half of French voters turned out on Sunday, compared to 70% in national elections. No party which has 'won' a European election in France has gone on to win the following national election."
With less than a month to the UK general election, City investors are weighing up the implications of a new government. And a poll by Bloomberg has found a Labour victory in next month’s UK election would be the best outcome for the pound, while a hung parliament was seen as the worst result.
The verdict will cheer Labour, as it tries to persuade voters that it is a safe choice on 4 July.
As Derek Halpenny, head of research for Europe, Africa and the Middle East at MUFG, put it: “A large stable majority for the Labour party, which is less divided than the Tories, will signal better stability ahead.”
Shadow chancellor Rachel Reeves has put a lot of effort into reassuring the City it can trust her party, arguing Labour is the “natural party of British business”, and ruling out raising income tax, national insurance and VAT.
Less encouragingly, about 60% of those polled – which included portfolio managers, economists and retail investors – reckon it will take the pound more than five years to return to the $1.50 level it traded at before the EU referendum of 2016.
Matthew Ryan, head of market strategy at global financial services firmEbury, agrees that a Labour majority would be the most “market friendly” outcome for the UK election.
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