By Karen Brettell and Alun John
NEW YORK/LONDON (Reuters) – The euro fell on Monday after the far right’s gains in Sunday’s European Parliament elections prompted French President Emmanuel Macron to call early national elections.
The uncertainty in France adds another element to what will be a busy week for markets, with US inflation data due on Wednesday, the same day as the Federal Reserve’s policy decision at its two-day meeting, and a Bank of Japan meeting on Friday. this week.
The euro last fell 0.4% against the dollar at $1.076 (), falling to $1.0733, its lowest level since May 9. The euro also fell 0.4% against sterling to a near two-year low of 84.52 pence, and was last down 0.4%. % on the Swiss franc at a seven-week low of 0.9648 francs.
The increase in support for right-wing parties was “generally what was expected, but the element of surprise is that Macron has responded by calling early elections, so that makes the market more nervous,” said Lee Hardman, senior currency analyst at MUFG.
The US dollar also got a boost after Friday’s jobs report showed employers created more jobs than expected in May, while wages also rose more than expected, raising traders’ expectations that the US central bank will cut interest rates as early as September , pushed aside.
“The market was clearly wrong-footed,” said Paula Comings, head of foreign exchange sales at US Bank in New York.
Wednesday’s Consumer Price Index (CPI) for May will be the next key data point driving Fed expectations.
If inflation softens, “the market will see some relief. I think the dollar could weaken, but probably not beyond its recent range,” Comings said.
However, if the rate is high, “the euro/dollar rate would continue to fall towards the lower end of the range” and would “disproportionately impact emerging market currencies,” Comings said.
Fed officials have said they want inflation to fall back near their annual target of 2% for several months before cutting rates.
Economists polled by Reuters expect headline consumer price inflation to decline to 0.1% from 0.3% last month, and core price pressures to remain stable at 0.3% this month.
A New York Fed survey on Monday showed the American public’s outlook on future inflation paths in May was mixed, although one-year inflation is estimated at 3.2%, compared with April’s forecast of 3. 3%.
Fed policymakers will update their economic and interest rate projections when they conclude their two-day meeting on Wednesday.
When last published in March, the median projection was for three cuts of 25 basis points this year, and investors expect the new forecast to point to fewer rate cuts.
The price last rose 0.09% at 105.15 and previously reached 105.39, the highest level since May 14.
The scaling back of expectations for rate cuts has supported the dollar for much of 2024, with the Japanese yen in particular suffering from the large interest rate differential between the US and Japan.
The dollar last rose 0.25% against the Japanese currency to 157.08 yen, its highest level in a week. .
The Bank of Japan will hold its two-day monetary policy meeting on Thursday and Friday, with the central bank widely expected to keep short-term interest rates in a range of 0-0.1%.
Reuters reported last week that BOJ policymakers are brainstorming ways to slow bond buying and may offer new guidance.
In cryptocurrencies, bitcoin gained 0.71% to $69,768.
