French election results favoring President Emmanuel Macron’s party boosted the euro but hit European equities Monday, while US stocks retreated due to another round of technology weakness.
The euro jumped above $1.12 in the aftermath of Sunday’s first round of voting for the France’s National Assembly. Projections showed Macron’s Republique en Marche (Republic on the Move, REM) party and its ally MoDem tipped to win 400 to 445 seats in the 577-member National Assembly in next Sunday’s second round.
“The rejection of populism has been one the main reasons why the euro” has been one of the best-performing G10 currencies this year, said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ in London.
But the strong euro — combined with Friday’s technology sell-off on Wall Street — weighed heavily on eurozone stock markets, with Frankfurt and Paris each shedding around one percent.
“It appears that the euro’s solid gains against both the dollar and the pound following Macron’s parliamentary success in France has sucked the life out of the eurozone indices,” said Spreadex analyst Connor Campbell.
Sterling meanwhile remained pressured again after Prime Minister Theresa May’s ruling Conservative Party lost its parliamentary majority last week, days before it starts crunch Brexit talks with the EU on exiting the bloc.
“I got us into this mess, and I’m going to get us out,” May told Conservatives MPs during a crunch meeting in Westminster.
But May’s prospects to stay Prime Minister are uncertain and “this ongoing uncertainty is weighing on the currency,” said analyst Kathy Lien of BK Asset Management.
US stocks retreated, with the Nasdaq suffering the deepest declines of the three major indices after another bruising session for large technology shares such as Apple and Amazon that had been surging prior to Friday’s technology rout.
Analysts have questioned whether the slump in technology shares is merely a case of profit taking or if it is a harbinger of a broad-based market pullback after all three indices hit records last week.
Trading in the broader market has been choppy. Key catalysts this week include the Federal Reserve’s policy decision Wednesday expected to result in an interest rate increase.
The foreign exchange market already has priced in a Fed rate hike this week, as well as one more in December.
But the dollar could falter if Fed Chair Janet Yellen “starts to sound less confident and less committed to tightening,” Lien said.
New York – Dow: DOWN 0.2 percent at 21,235.67 (close)
New York – S&P 500: DOWN 0.1 percent at 2,429.39 (close)
New York – Nasdaq: DOWN 0.5 percent at 6,175.46 (close)
Euro/dollar: UP at $1.1203 from $1.1197 at 2100 GMT on Friday
Pound/dollar: DOWN at $1.2657 from $1.2738
Dollar/yen: DOWN at 109.93 yen from 110.26 yen
Oil – Brent North Sea: UP 29 cents at $48.15 per barrel
Oil – West Texas Intermediate: UP 25 cents at $46.08 per barrel
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