Euro drops amid uncertainty and snap French election

Prospect of increasing economic stagnation rattles markets

Pound sterling coins on european notes symbolising the pound to euro exchange rate that slipped following the french european election results
The euro slipped to its lowest level against the pound sterling since March 2022, making one pound worth €1.18
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The euro has fallen to its lowest level against the pound sterling for nearly two years, losing one cent in a day following the results in the European elections.

The markets were troubled on Monday morning (June 10) as they grappled with the far-right’s success in the European elections and the announcement of French parliamentary elections in June and July.

The CAC40 French stock exchange slipped by 1.75% on Monday.

This uncertainty follows the downgrading of France’s debt from AA to AA- by the rating agency S&P on May 31, 2024, putting it on the same level as the Czech Republic or Estonia.

As a consequence, June 10 saw the euro slip to its lowest level against the pound sterling since March 2022, making one pound sterling worth €1.18.

The combined uncertainty also saw France’s borrowing costs surge.

‘Mediocre economic results’

However, it is not necessarily the prospect of a far-right leaning parliament, dominated by the Rassemblement National, that is troubling markets, but rather the government’s tenuous path to economic reform.

“France is in a situation where reforms are becoming impossible,” Alexandre Hezez of the Groupe Richelieu investment group told Le Monde. “We already saw this with the S&P downgrade.

“All of this shows that there is a risk of budget deficits, debt and maybe even more downgrades in the near future”.

Bruno Cavalier, lead economist of independent financial group Bourse Oddo BH, agreed saying the relatively stable economy of the past two years cannot be taken for granted going forward.

“These latest events create uncertainty at a time when the latest economic and budget results are quite mediocre.”