Investors are shunning the euro and France

The shift to the right in the European elections has led investors to avoid the euro, but it is not the only factor affecting the currency’s future. Europe is moving to the right and in response, the single currency is declining. The defeat of established government parties further contributed to its decline in value.

In recent days, the euro has lost almost 3 percent of its value against the Swiss franc. Investor nervousness can be seen in the bond market, where French government bonds were sold off, causing a rise in yields. French President Emmanuel Macron’s decision to dissolve the National Assembly has added political uncertainty to France, impacting confidence in the euro even further.

Unresolved financial problems in France and a recent credit rating downgrade by S&P are weighing heavily on investors’ minds. Meanwhile, new elections in France increase concerns about financial stability with little signs of deficit control. The US data on labor market has been better than expected, indicating a strong economy. However, diverging monetary policies between Europe and America are contributing to dollar’s strength against euro.

Given that America has a solid labor market and high inflation levels, it is expected that American central bank will leave key interest rate unchanged which contrasts with Eurozone’s monetary policy divergence between both sides of Atlantic is one of reasons why dollar is currently strengthening against euro.

By Sophia Gonzalez

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