Amidst the rise of right-wing nationalist parties in Europe, investors have been steering clear of the euro. The currency’s future performance is not solely determined by European politics, but also by global economic factors.
The defeat of established government parties has led to a downward trend for the euro, with investors expressing concerns over its stability and potential losses against other currencies like the dollar. On Monday, the euro hit a one-month low of $1,075 against the dollar, indicating that there is uncertainty surrounding its value in the near future.
The Swiss franc has also been gaining strength against the euro in recent days, as investors seek safety amidst political instability in Europe. Since late May, when it appeared that the franc was losing ground against the euro, there has been a reversal in this trend, with the euro losing nearly 3 percent of its value against the Swiss currency.
French President Emmanuel Macron’s decision to dissolve the National Assembly and call for new elections following gains by right-wing populist parties has further exacerbated political uncertainty in Europe. This has led to nervousness among investors and an increase in bond sales, causing yields on ten-year bonds to rise to 3.19 percent – their highest level since November.
Investors are also wary of France’s unresolved financial problems post-pandemic, including rising government spending and a credit rating downgrade by S&P from AA to AA-. This uncertainty coupled with divergent monetary policies between Europe and America has contributed to the dollar’s gains against the euro. The positive data on America’s labor market supports this trend further as it suggests that interest rates will remain steady during upcoming meetings of Federal Reserve Bank.
Overall, while European politics play a role in shaping investor confidence and currency values in Europe, global economic factors are also at play in determining future performance.
