On July 1, 2024, the Euro to Pound rate rallied after the first round of the French election, causing the GBP/EUR exchange rate to drop to 3-week lows at around 1.1775. There was some relief as it was expected that the National Rally (RN) would not secure a majority in the upcoming second round, although uncertainty still remained high.
In the first round of the French elections, RN received around 33% of the vote, followed by the left-wing alliance (NPF) with 28% and President Macron’s centrist party in third place. The focus now shifts to the second round on Sunday, with many three-way contests adding complexity to the situation. Calls for candidates to drop out to prevent the RN from winning seats are expected.
Opinion polls suggest that the RN will not achieve an overall majority in parliament. Bank of America anticipates some Euro recovery in a “hung parliament” scenario. Commonwealth Bank of Australia (CBA) strategist Carol Kong noted that the RN’s performance was slightly below expectations, leading to a modest rise in the Euro.
Fiona Cincotta, senior markets analyst at City Index, shared a similar view, stating that Le Pen’s margin was smaller than anticipated, which may have supported the Euro. Despite these positive developments, underlying concerns about the outlook persist.
As the UK General election approaches, Labour maintains a dominant position in opinion polls. ING suggests that a Labour landslide victory is widely expected, with the main risk being a stronger-than-expected result by the Reform UK party. Polls show little shift, but there are indications that support for the Reform Party may have peaked, potentially reducing political risk.
Overall, the outcome of the French election’s second round remains uncertain, with bond markets playing a crucial role in determining the Euro’s performance. The UK General election is expected to have minimal impact on markets, with attention focused on potential outcomes in the face of ongoing political uncertainties.