- EUR/USD turns sideways above 1.0800 after printing a fresh three-week high near 1.0850 on Monday. The major currency pair strengthens as the Euro’s outlook improves after French election polls showed the Marine Le Pen-led-far right National Rally missing an absolute majority. This has reduced the risks of widening France’s debt crisis.
- However, political uncertainty remains intact as no Party gains an outright majority. This leads to the formation of a coalition government that results in a significant delay in fiscal decisions due to divergent opinions. Investors expect that Jean-Luc Mélenchon's left-wing coalition, which unexpectedly gained higher seats than the rest, will join hands with President Emmanuel Macron's centrist alliance to form a new government.
- Meanwhile, easing speculation that the ECB will deliver subsequent rate cuts in the July meeting has supported the downside in the Euro. Officials expect price pressures will not deviate far from their current levels this year, but an aggressive policy easing stance could revamp them.
- On Monday, ECB policymaker and Dutch central bank chief Klaas Knot pushed back expectations of rate cuts in July. Knot said in an interview with Handelsblatt, “I don't see a case for another rate cut in July." However, he remained comfortable with market expectations of more rate cuts this year, and for that, he is open for the September meeting
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