Daily Brief – Second Round

Charles Porter
Tue 9 Jul 2024

Second Round

The second and final round of the French legislative election took place on Sunday. The results of the election are now clear. However, the consequences of such voting outcomes are still far from known. With a relatively light data calendar for the Eurozone this week ahead of the ECB decision next Thursday, focus will continue to gravitate towards the evaluation of the election result. By contrast there will be a plethora of attention paid to the US Dollar as Fed Chair Jay Powell faces a grilling from the Senate. Any lessons from this event will dominate EURUSD. However, flows concerning the Euro will largely still be influenced by the digestion of the French election. 

So, what happened? No one alliance or party secured an absolute majority in Parliament. The left-wing bloc, the Nouveau Front Populaire, was the apparent ‘winner’ of the vote, securing the largest number of seats within parliament. However, with 182 seats, this alliance is a far cry short of a majority. One could argue that versus the polls who projected Macron’s centrist alliance would secure less than 100 seats, materialising 163 seats is a relative landslide. No small thanks to a two-round voting system here. One obvious concern for France and the Euro will be the lack of a majority government to push through the Prime Minister/President’s agenda. Political gridlock, particularly in the event of a minority left-wing PM being appointed, could hamper French Politics and the Euro in turn. 

But… there could be another option and one that is likely the reason EURUSD has defended the 1.08 level during yesterday’s trading session and overnight. Should the moderates and centrists form a new alliance they could hold a majority of over 350 seats. The only concern: it may be asking the French leopards to change their spots. However, there is a scenario where the 2nd place centrist alliance holds the office of Prime Minister in a coalition that excludes only the far Right and Left of the spectrum. So far, there has been limited appetite shown from the traditional right and left of elected parties for such a formation of government. But it could well still be the prospect of such coalition forming that is keeping EURUSD bid. Don’t forget, with the European Commission proposing France follows Excessive Deficit Procedures following the election, there is little time to spare. 

Discussion and Analysis by Charles Porter

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