European assets are facing a risk-off session following the weekend’s parliamentary elections. The euro recorded the worst two-day performance against the dollar since February 2023. All European indices were in negative territory.
European assets experienced a risk aversion session after the election results weekend parliamentary elections. The euro was down 0.6% against the US dollar, standing at 1.0760 at 1:10 p.m. This, combined with the 0.8% drop last Friday, marked worst two-day performance of the single currency from the beginning of February 2023.
In it equity marketall the European indices They traded in negative territory. The CAC 40 in Paris was the hardest hit, falling 1.7%, on track for its worst session in almost a year.
French values suffered a general declinewhich especially affected banks such as Societé Générale and BNP Paribas, with drops of 7% and 5% respectively. Besides, companies Large caps such as Hermès and LVMH fell around 2%. He German DAX index fell 0.7%, while the Italian FTSE MIB lost 0.9%. The Euro Stoxx 50 fell by 1.2% and the Euro Stoxx 600 by 0.6%.
Election results reveal the rise of far-right parties
Although the current majority coalition in the European Parliament -formed by European People’s Party (EPP), center-right, the Socialists and Democrats (S&D), center-left, and the liberal group Renew- maintained leadershipthe surprise came from the results in France and Germanythe two main European powers.
In Germany, the Social Democratic Party of chancellor Olaf Scholz got the worst result in its history, falling to third place behind the far-right Alternative for Germany. In France, the president Macron has unexpectedly called early legislative elections after his Renacimiento party obtained lower results than those of the National Group of Marine Le Pen. The first round of the Parliamentary election It is set for June 30, and the second for July 7.
In Italy, the right-wing Italian Brothers party of the First Minister Giorgia Melonisignificantly improved its position, obtaining 28.8% of the votes. This represents more than quadruple your quota in the 2019 European elections and exceeds the 26% it achieved in the 2022 national elections, when it came to power.
Although the EPP obtained the largest number of seats, reinforcing the candidacy of Ursula von der Leyen for a second term as president of the Commission, the rise of far-right parties in lthe opposition poses a challenge to passing key legislation needed to address security issues, energy policies and military alliances.
Analyst reactions
Luca Cigognini, market strategist at Intesa Sanpaolo, commented that the important defeats of Macron and Scholz had a Strong impact in the behavior of the EUR/USD at the opening of the European market.
He noted that the EUR/USD pair failed to hold the technical support of 1.0800 and fell to 1.0750. “It is possible that this movement is due to an emotional reaction and that it is short-lived,” added Cigognini, who stressed the importance of maintaining support level of 1.0740 to avoid a broader downtrend towards 1.0680.
Pablo Zaragoza, responsible for macroeconomy and European rates from BBVA, indicated that, although the results of the European elections were notable, they were not entirely surprising from a global perspective. The majority parties they maintained their majority in Parliament, although they lost ground to far-right groups.
He noted that “the devil is in the ‘national’ details, particularly in France.” Zaragoza also suggested that the risk aversion climate triggered by the election results would likely put pressure on the real returnsespecially in France and Italy, while countries such as Portugal and Spain could continue to obtain better results.
Chris Turner, Global Director of Markets at ING, highlighted that french elections scheduled for June 30 could weigh on the currency throughout the month. He described the move as a gamble, questioning whether the french electorate really want a far right government or whether it is an opportunity to give the electorate three years to experience such a government before the presidential election of 2027.
Turner also noted that “the risks of another uncomfortable impression of the IPC US core data of 0.3% MoM on Wednesday will likely keep the rising dollar until we hear from the Fed on Wednesday night.”
