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EUR USD Plummets as Macron Faces Parliamentary Challenge

The Euro US Dollar (EUR USD) exchange rate plummeted over a cent from its best levels yesterday as markets turned to focus on the challenges that Emmanuel Macron will now face following the election on Sunday.

Macron claimed a convincing victory in Sunday’s voting, with the Pro-EU candidate winning 66.1% of the vote and being elected as France’s youngest leader since Napoleon, however the Euro’s jubilation was short lived as markets reflected on the uphill battle he now faces.

His newly renamed La Republique En Marche party is now under pressure to field candidates in June’s parliamentary elections, where it hopes to gain a majority to help Macron enact his promised reforms. A daunting prospect for the new party which currently holds no seats at all.

Unlike the presidential election, Macron is unlikely to find cross-party support next month, with his defeated rivals (like the Republicans) seeking to expand their influence in Parliament.

Despite losing Sunday’s election Macron’s main political rival Marine Le Pen has also vowed to lead a ‘new force’ in the parliamentary elections, with observers predicting that her National Front party will also go under a name change in order to help shed its anti-Semitic image.

Current polls suggest that En Marche is expected to gain around 24%-26% of the vote, although the first past the post system used for voting makes it difficult for analysts to gauge exactly how many seats this would translate into.

However, EUR USD found some strength this morning following the release of Germany’s latest Trade Balance report as the nation’s surplus rose by over €5bn in March.

According to data released by Destatis, Germany’s trade surplus climbed from €20bn to €25.4bn at the end of the first quarter, beating forecasts that it would rise to €24.5bn thanks to strong overseas demand.

Mehreen Khan writing for the Financial Times said;

‘Year on year exports were up an impressive 10.8 per cent in March while imports climbed 14.7 per cent – a sign of healthy foreign demand for German wares and buoyant consumer appetite within the country which boasted its best level of growth in six years last year.’

Meanwhile, the US Dollar was bolstered on Monday thanks to rising odds that the Federal Reserve will vote to hike US interest rates next month.

CME’s FedWatch Toll currently places the odds of a rate hike in June at over 87% following a speech from known Hawk Loretta Mester as the Cleveland Fed President suggested that the central bank should not delay tightening its monetary policy despite the recent lacklustre economic data.

While many Fed policymakers would prefer to take a more cautious approach following a slowdown in inflation, she warned that they should not ‘overreact to transitory movements in incoming data’.

Looking ahead the EUR USD exchange rate is likely to rally tomorrow if French Industrial Production returns to growth in March as economists expect.

However a speech by European Central Bank (ECB) President Mario Draghi on Wednesday afternoon could drag down the Euro once again if he signals that the bank will continue to maintain its ultra-loose monetary policy for the foreseeable future.

Meanwhile, the US Dollar could cede some ground later today as analysts forecast that US Wholesale Inventories will contract by -0.1% in March.

Current Interbank Exchange Rates

At the time of writing the EUR USD exchange rate was trending around 1.09 and the USD EUR exchange rate was trending around 0.91.