The euro remains steady this morning, unchanged, near the 1.08421 level, while Eurozone bond yields return to the rise after last week’s decline.
The euro’s movements come with uncertainty in the region after the unexpected election results in France and the imposition of a state of intense partisan polarization, in addition to the deterioration of investor sentiment after eight months of improvement.
While political and economic uncertainty, in addition to the slowdown in the US economy, prompted investor sentiment in the Eurozone to deteriorate significantly in July. According to the Sentix survey, a combination of the previous factors led to a decline in investor sentiment about the current situation and future expectations after eight months of improvement, and this led to recording a much worse reading than expected for the Sentix Economic Sentiment Index at -7.3. Whereas this survey was conducted even before the unexpected election results.
The political scene in Europe presented more surprises after the results of the second round of the French parliamentary elections and the unexpected rise of the far left, represented by the New Popular Front coalition. This came after previous expectations of the progress of the far right, represented by the National Rally, in light of the European parliamentary elections. Yesterday’s results revealed a complex reality in which neither the right, left, or center parties dominate.
Party polarization may lead to the formation of a new political landscape that is not yet clearly defined, and this would create more political uncertainty in France, which may help the region’s bond yields to maintain their upward trend, which may leave the euro some strength to confront the dollar.
This is as there is little that unites the parliamentary blocs with very different orientations, and this may make dealing with sensitive issues more complicated – immigration, the position on the war in Ukraine and the Middle East, and labor laws, most importantly. While it does not seem unlikely that this clash between opposing blocs could lead to a constitutional crisis, according to The New York Times.
