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GBP/EUR: Euro rises after round 1 of the French election

1st July 2024

Pound (GBP) is falling as manufacturing growth slows
UK elections are on Thursday 4^th July
Euro (EUR) is rising in a relief rally after French elections
German inflation cools to 2.2%

The Pound Euro (GBP/EUR) exchange rate is falling on Monday, extending losses from last week. The pair fell 0.25% in the previous week, settling on Friday at €1.1796 and trading in a range between €1.1787 and €1.1861. At 15:00 UTC, GBP/EUR trades -0.03% at €1.1793.

The euro is making significant gains across the board following the French election over the weekend. The election revealed that the Eurosceptic far-right party, the National Rally, won the first round, albeit by a smaller margin than some polls had suggested. This outcome has notably influenced the euro’s performance.

Marine Le Pen’s far-right party looks unlikely to secure the votes necessary for an absolute majority after a second round of polling on July 7^th.

The markets had been worried that a strong showing for Le Pen’s party would boost the odds of an expansive fiscal policy lifting debt to dangerous levels.

Attention now shifts to the July 7th elections to see if Le Pen’s party can garner enough support to secure an absolute majority in the National Assembly. This would enable the party to pass legislation more easily, a potential development that could significantly impact the market.

Meanwhile, on the data front, German inflation came in cooler than expected, falling to 2.2% year on year, down from 2.4% in May. The data supports the view that the ECB could cut rates again after reducing interest rates at the start of June.

The pound is falling against the stronger euro but rising against the US dollar as investors digest the latest manufacturing PMI data for the UK and look ahead to this week’s elections.

Data showed that UK manufacturing was 50.9 in June, down from 51.2 in May and a downward revision from the perimeter reading of 51.4. Despite growth sliding back from May’s nearly 2-year high, cost inflation returned as input prices rose at the fastest pace since January 2023.