EUR: French Parliamentary Vote Unlikely to Significantly Impact Euro - Gate Analysis

Gate's FX analyst team notes that the latest Bloomberg survey of European Central Bank forecasters indicates a notable shift towards more hawkish expectations.

ECB Decisions May Present Some Downside Risks for Euro

The consensus among analysts has solidified around the belief that the rate cutting cycle will conclude above 2%, with increasing expectations for potential rate hikes in the latter half of next year. Market indicators have continued to adjust, pricing out rate cuts, with only a minimal 8 basis points remaining in the December contract. While recent economic data has largely supported this outlook, discussions surrounding another potential rate cut may prove more contentious than anticipated. Consequently, ECB meetings and subsequent communications outside of these formal gatherings could introduce some downside risks for the euro.

Nevertheless, when it comes to the EUR/USD pairing, the primary focus remains overwhelmingly on the Federal Reserve and U.S. economic indicators. Our analysts project a return to levels above 1.170 for this currency pair. In the coming days, French politics, along with any developments in the ongoing situation in Ukraine, will continue to be significant factors influencing the euro's performance. The expectation is that the French parliament will reject the current Prime Minister in Monday's vote. A plausible scenario following this outcome could involve the President selecting a new centrist or center-right prime minister to implement a moderated fiscal consolidation package.

While political uncertainty is expected to remain elevated throughout this process, our analysts are not convinced that this alone will be sufficient to trigger any uncontrolled fluctuations in French government bonds (OATs) or, by extension, exert significant pressure on the euro. The market appears to have largely priced in the anticipated no-confidence outcome.

This analysis is for informational purposes only and should not be considered as investment advice. Past performance does not guarantee future results.