EUR/USD Rises Towards 1.0850 as Traders Digest Initial Shock of French Election

EUR/USD continued its sixth straight day of gains, trading around 1.0830 in Asian trading on Tuesday. The euro continued to rise as investors digested the initial shock of the French election results. An unexpected left-wing coalition took the lead, preventing Marine Le Pen’s far-right party from dominating the leadership race after a sharp loss in the previous European Parliament elections.

Frances Cheung and Christopher Wong, foreign exchange analysts at OCBC Bank, noted that the euro fell slightly at the beginning of the week after the unexpected result of the second round of elections. “A left-led government is the least expected, raising concerns over a possible increase in public spending, which could further strain public finances,” they noted.

The EUR/USD pair moved higher as the dollar struggled following weak U.S. jobs data, leading traders to speculate that the Federal Reserve (Fed) could cut interest rates in September. The CME FedWatch Tool showed that interest rate markets are pricing in a 76.2% chance of a September rate cut, up from 65.5% a week ago.

Fed Chairman Jerome Powell is likely to deliver his “Semi-annual Monetary Policy Report” to the U.S. Congress on Tuesday. Powell is likely to give a broad overview of the economy and monetary policy, with his prepared remarks to be released before his appearance on Capitol Hill.

On the data front, inflation data from Germany and the U.S. are scheduled for release on Thursday. Germany’s Harmonized Index of Consumer Prices (HICP) inflation rate is expected to remain at 2.5% year-on-year in June. Meanwhile, the U.S. core CPI is expected to remain at 3.4% year-on-year.

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