Euro Currency Plunges! What's Happening in the Market?


The euro fell sharply on Monday, weighed down by political uncertainty following a victory by far-right parties in Sunday's European Parliament vote that prompted French President Emmanuel Macron to announce snap national elections.

Uncertainty in France adds another element to what will be a busy week for markets with key US inflation data scheduled for Wednesday, the same day as the Federal Reserve's policy meeting, and then the Bank of Japan meeting to end the week.

The euro slipped 0.6% against the US dollar to $1.0733, its lowest level since May 9. It also fell 0.4% against sterling to a near two-year low of 84.53 pence, and was last down 0.6% against the Swiss franc at a seven-week low of 0.9626 francs.

"The election results at the weekend from the EU largely showed an increase in support for right-wing parties, generally what was expected, but the surprise element was that Macron responded by announcing a snap election, so that made the market more nervous," said Lee Hardman , senior currency analyst at MUFG.

"That reinforced the euro sell-off we saw at the end of last week, and another factor on top of that was a very strong US wages report, which increased the risk of a more hawkish Fed policy signal when they meet on Wednesday."

The Federal Reserve will conclude its two-day policy meeting on Wednesday. Data on Friday showed non-farm payrolls rose by 272,000 jobs last month, well above expectations in a Reuters poll of 185,000.

Markets are now pricing in a 36 basis point (bps) Fed rate cut this year compared to nearly 50 bps two 25 bp cuts before the jobs data.

US consumer inflation data will be another factor in the Fed's decision making. While no policy changes are expected at the meeting, the Fed will release its latest batch of 'dot plots', policymakers' projections of the direction of interest rates.

In the last release in March, the median forecast was for three 25-bp rate cuts paad this year. Investors will be watching to what extent the figure will be revised.

Reduced expectations for rate cuts have supported the US dollar for much of 2024, with the Japanese yen suffering losses.

The US dollar was last up 0.1% against the Japanese currency at 156.85 yen, after jumping 0.7% on Friday after the payrolls print. With sterling down 0.14% at $1.2705, the dollar index – which tracks the unit against six major peers – was up 0.22% at 105.29, a one-month high.

Japan will also be in the spotlight this week, as the Bank of Japan will hold a two-day monetary policy meeting on Thursday and Friday, with the central bank widely expected to keep short-term interest rates in the 0-0.1% range.