Euro takes a steep drop after Macron calls snap election

The Euro took a steep drop to start the week as French President Emmanuel Macron announced a snap election in response to the shock European Parliament election results. The US Dollar remained stable in anticipation of the Federal Reserve's meeting later this week.

The dollar was bolstered by a stronger-than-expected jobs report on Friday, which tempered expectations for rate cuts and indicated that the U.S. central bank might delay starting its easing cycle this year.

The euro fell to a one-month low against the US Dollar after Macron took a risky gamble to reassert his authority by calling for an election following far-right gains in the European Union vote.

Eurosceptic nationalists made the largest gains in Sunday's European Parliament elections, according to an aggregated exit poll, although centrist, liberal, and socialist parties are expected to retain a majority. The euro was down almost 0.5%, having dropped over 2.5% against the dollar this year. It reached its lowest level against the pound since August 2022 and slipped 0.2% against the yen.

The European Central Bank cut rates last week in a widely anticipated move, but provided few clues about the future of monetary policy, considering that inflation remains above target. The dollar index, rose 0.18% to 105.25, after reaching a nearly one-month high of 105.30 earlier in the session.

Data released on Friday showed nonfarm payrolls rose by 272,000 jobs last month, surpassing expectations from a Reuters poll, which predicted 185,000 jobs with estimates ranging from 120,000 to 258,000. Currently, markets anticipate a reduction of 36 basis points in Federal Reserve rates this year, compared to the previous estimation of nearly 50 basis points, or at least two cuts, prior to the release of the jobs data.

The probability of a rate cut in September now stands at approximately 50%, down from about 70% on Thursday. The Federal Reserve is scheduled to meet on Tuesday and Wednesday, and it is anticipated to maintain rates at their current levels.

The focus will shift to remarks from Chair Jerome Powell and any alterations to economic projections. Additionally, U.S. inflation data is scheduled for release on Wednesday.

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