The euro falls against most of its G-10 counterpart currencies, in a context of increasing power of the far right in the EU parliamentary elections.
The euro, the official currency of the 20 members of the European Union, has suffered a sharp drop from this Friday given the uncertainty generated by the rise of the far right in the elections to the European Parliament. Far-right parties gained notable support, even though the incumbent leader, Ursula von der Leyen, emerged victorious.
At 12:48 p.m. (Central European Time), the euro fell 1% against the dollar since the market open on Friday, up to 1.0774, its lowest in almost a month. Meanwhile, the single currency weakened against the pound sterling to 0.8469, the lowest level since August 2022. The euro also fell against the Swiss franc to 0.9660, its lowest level in more than two months.
Far-right parties gain overwhelming power in major EU economies
He power of the extreme rightincreases in the main member countries of the European Union, according to the latest surveys. In FranceEmmanuel Macron dissolved the National Assembly and called early elections in a huge defeat for the far-right National Regrouping of Marine Le Penwhich won 31.5% of the vote, more than double that of Macron’s Renaissance party.
In Italy, the Hermanos de Italia of the first minister Giorgia Meloni They consolidated their power in the European Union with 28% of the votes, the highest in the country. Furthermore, the German far-right party Alternative for Germany (AfD) He took second place with 16.2% of the votes, according to the state broadcaster ARD, while the Social Democrats of Chancellor Olaf Scholz obtained their worst historical result. Furthermore, the far-right Austrian Freedom Party It was in the lead with 27% of the votes, well ahead of the ruling party, with 23.5%. Far-right powers also experienced increases in Belgium and Spain. The far-right leader Viktor Orban remains in first place in Hungarydespite obtaining the worst result in its history.
The possible power gains of the extreme right come at the expense of significant losses for the Greens and the Renewal liberals, who according to the latest polls would lose about 20 deputies each. This change could have a strong influence on key EU policies, such as the Green Deal, pro-EU stances, immigration law and war aid in Ukraine.
How important is it for the euro?
The immediate fall of the euro reflects the growing uncertainties in the face of the rise of power of far-right parties. These representatives of the right, for the most part populiststhey are usually skeptical of the EU, anti-immigration, anti-green transition or pro-Russia. Their growing influence within these groups has the potential to disrupt the European Union’s parliamentary policies in these areas, leading to challenges in political and economic alignments.
The transfer of power can weaken the respective government implementation of key policies, which is considered a threat to national and EU security. Political uncertainties can disrupt the order of economic activities and therefore weaken economic growth. In short, the euro fell due to the possible weakening of the functionality of national governments.
The movements of the main yields of the Eurozone public debt They will be closely watched at Monday’s market opening. A weakened euro could signal declines in the yields of these sovereign bonds, as investors could seek safe-haven assets. French and German benchmarks are particularly in focus as equity and bond yields could decline, potentially leading to widening spreads with government bond yields in countries such as Italy and Spain.
Other factors driving euro weakness
He European Central Bank (ECB) made last week the first rate cut since 2019, marking the end of the current rate hike cycle. Despite a hawkish stance at the policy meeting, growing political uncertainties may pressure the ECB to be more accommodative in monetary policy to support the region’s economy. This could further divert the central bank’s policy stance from that of its Western counterparts, especially the Federal Reserve (Fed). The Fed is about to decide on its interest rate on Thursday, with no policy change expected.
The euro zone economy stagnated in the second half of 2023, and the persistence of the political panorama may further cloud the prospects. In contrast to the euro zone, the United States economy is much stronger and more stable, which may encourage investors to sell the euro and buy the US dollar as a safe haven.
