Euro extends gains with eye on French election

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Euro extends gains with eye on French election

The euro has posted gains on Thursday and is trading at 1.0812 in the European session, up 0.26% on the day. It has been a good week for EUR/USD, which has gained 0.95% and hit a three-week high on Wednesday.

Will Le Pen snag a majority?

France heads for the polls on Sunday for the second round of parliamentary elections. Mary Le Pen's far-right party is expected to be the largest party in parliament, but the key question if together with other rightist parties she can win a majority and control parliament. If Le Pen does win a majority, it will mark a stunning defeat for French President Macron and could trigger turmoil in the financial markets.

The European Central Bank is staying neutral in the French election but is undoubtedly worried about the fallout from a Le Pen victory. ECB President Lagarde hosted the ECB forum in Portugal this week and focused on inflation and rate policy. Lagarde said that the ECB was "very advanced in that disinflationary path" and that the 2% inflation target could be achieved by the fourth quarter of 2025.

Lagarde added that the road to the 2% target would be "bumpy" for the remainder of 2024 and the ECB would remain cautious regarding additional rate cuts. The ECB made a major shift in policy in June, delivering its first rate cut since 2019.

Fed remains cautious about rate path

The Federal Reserve released the FOMC minutes on Wednesday and the message was one of caution. The minutes said that "price pressures were diminishing" and noted the slowdown in wage growth. Still, Fed officials were not yet confident that inflation was moving sustainably towards the 2% inflation target. This message, which echoed Fed Chair Powell's remarks at the ECB forum earlier this week, indicated that the Fed remains hesitant about lowering rates. The markets have priced in a quarter-point cut in September at 66%, up from 59% one week ago.

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EUR/USD Technical

• There is support at 1.0781 and 1.0744


• 1.0825 is a weak resistance line. Above, there is resistance at 1.0862

Source: Euro extends gains with eye on French election