- EUR/GBP gains momentum near 0.8490 in Tuesday’s early European session.
- The Euro gains ground after results from the first round of French elections.
- Traders will keep an eye on the UK Parliamentary elections on Thursday.
The EUR/GBP cross trades in positive territory for the fifth consecutive day around 0.8490 during the early European session on Tuesday. The Euro (EUR) edges higher after results from the first round of French elections suggested the far right would beat President Emmanuel Macron but fall short of winning an outright majority in parliament. Investors will closely watch the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for June, which is due on Tuesday.
Marine Le Pen’s far-right National Rally (RN) party won 33.15% in the first round of France’s parliamentary elections on Sunday, according to final results published Monday by France’s Interior Ministry. Meanwhile, French President Emmanuel Macron’s centrist alliance suffered staggering losses, coming third with 20.76% of the vote. The left-wing coalition of the New Popular Front (NFP) made a strong showing with 27.99% of the vote.
However, the RN might fall short of the 289 seats needed for an absolute majority, which lifts the shared currency against the Pound Sterling (GBP). BBVA's chief strategist Alejandro Cuadrado commented "In the event of Marine Le Pen's National Rally (RN) winning an absolute majority, the EUR could face additional short-term headwinds.”
On the other hand, the GBP weakens as investors remain uncertain about the timeline that the Bank of England (BoE) will start cutting interest rates. Also, market players turn cautious ahead of the UK elections outcome on Thursday. The opposition Labor Party is expected to win from UK Prime Minister Rishi Sunak-led Conservative Party, according to the latest exit polls.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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