The recent shift to the right in European politics has led to a decline in investor confidence in the euro. However, the future of the currency does not solely depend on European politics. Europe is moving to the right, and the euro is following suit, experiencing losses.
The euro saw significant losses during the European elections, where right-wing nationalist parties made substantial gains that eroded investor confidence in the single currency. Additionally, the defeat of established government parties further contributed to its decline.
Furthermore, the euro also suffered losses against the franc at the start of the week, continuing a trend from previous days. Since May 2021, it has lost almost 3% of its value against Swiss currency. Investor nervousness is also reflected in bond markets where French government bonds were sold off, leading to an increase in yields.
French President Emmanuel Macron’s decision to dissolve France’s National Assembly adds political uncertainty and impacts investor confidence further. Unresolved financial problems in France and recent credit rating downgrades by S&P are also weighing heavily on investors’ minds.
The prospect of new elections in France increases concerns about financial stability with little signs of deficit control. Meanwhile, US data on labor market performance has been better than expected, indicating a strong economy. The diverging monetary policies between both sides contribute to dollar strength against euros.
Given its solid labor market and high inflation levels, America’s central bank is expected not to change key interest rates from what was initially planned – a contrasting approach with Eurozone monetary policy decisions – contributing significantly to dollar strength against euros at present time
