The Euro (EUR) experienced a relief rally after the French election results met expectations. However, the rally lost momentum on Monday as doubts emerged about additional support for the common currency leading up to the second round on Sunday, July 7th. Francesco Pesole, ING’s FX strategist, highlighted the uncertainties surrounding the Euro.
Interestingly, other European currencies did not show uniform support, with markets favoring the higher-yielding NOK and GBP over the lower-yielding SEK and CHF. ING predicts a strengthening in NOK/SEK due to policy differences during the summer months.
One factor contributing to the lack of significant support for the EUR is the forecasted decline in inflation across the eurozone in June. Current estimates suggest a 2.5% headline and 2.8% core inflation rate. This data aligns with expectations and may impact the Euro’s performance in the near future.
While the USD faces some downside risks, the EUR seems to be in a more precarious position compared to high-beta currencies like NOK, AUD, and NZD. There is a possibility of a USD-driven movement pushing EUR/USD to 1.0800 in the coming days. However, the potential upside is limited by French political risks this week.
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In conclusion, the Eurozone’s inflation forecast indicates a slowdown, with implications for the Euro’s performance in the near future. Investors should stay informed of market developments and exercise caution when making investment decisions.