EUR/USD Surges On French Election Results And Fed Rate Cut Prospects

EUR/USD rose 0.50% during Monday’s European session, jumping to a more than two-week high near 1.0770. The pair gained ground as exit polls from the first round of French parliamentary elections on Sunday showed Marine Le Pen’s far-right National Rally (RN) party on course for victory, but by a smaller-than-expected margin, and a sharp correction in the U.S. dollar (USD).

If the far-right parties perform slightly worse, concerns about more expansionary and unsustainable fiscal policy could decline,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Investors will now turn to the second round of runoffs scheduled for July 7.

On the monetary policy front, investors are looking for clues on whether the European Central Bank (ECB) will continue to cut interest rates. The ECB began cutting rates in early June to curb price pressures caused by coronavirus-induced stimulus measures after maintaining a restrictive rate stance for two years.

The main trigger for the euro in Monday’s trading will be the preliminary German Harmonized Index of Consumer Prices (HICP) data for June, which will be released at 20:00 Beijing time. Economists expect the annual HICP inflation rate in the eurozone’s largest economy to slow to 2.6% from the previous value of 2.8%. The monthly rate is expected to rise to 0.2% from 0.1% in May.

A decline in German inflation expectations or a faster decline will boost expectations of an early ECB rate cut, while the hot data will ease hopes of a subsequent ECB rate cut.

This week, the main trigger for the euro will be the preliminary value of the eurozone HICP inflation rate for June, which will be released on Tuesday.

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