Last Sunday's European Parliament elections sparked varying degrees of political turmoil in Western Europe, and markets were quick to react to the perceived threat. The euro fell sharply, but the Hungarian forint fell even more sharply, painting a bleak picture for both currencies.
The latest election results have already hit the euro and European stock markets hard. Despite the early warning signs, the sell-off may not last long as neither markets nor analysts were prepared for the rise of the far-right.
Analyst reports published after the election painted an increasingly bleak picture for the euro, with the consensus being that rising political extremism could fundamentally undermine confidence in European markets and lead to a decline in asset values. Bloomberg.
European elections shake up markets
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This process has already begun. Following poor election results, French President Macron dissolved parliament and called for early elections, Belgium's prime minister resigned, and Germany's coalition government suffered its worst ever result. As a result, the euro fell 0.5% against the dollar to its lowest in a month, and Western European stock markets opened the first trading day after the elections with sharp declines.
Analysts say volatility could return along with the uncertainty, putting pressure on euro markets, which have not been without stress recently. Better-than-expected U.S. labor market data released on Friday has shifted expectations for the Federal Reserve's interest rate moves, with markets now pricing in one rate cut instead of two.
The result would be a high base rate and a surge in the dollar, which would be painful for the euro. The rise of the far-right in the European Parliament raises questions about whether Macron can implement economic policies in a divided parliament and whether he can achieve greater fiscal convergence among member states.
Moreover, the failure of Germany's coalition government, which oversees Europe's largest and currently struggling economy, is adding to the euro's woes.
Hungarian forint falls further
Photo: depositphotos.com
The Hungarian forint has fallen more sharply than the euro in recent hours/days, despite the lack of a sudden rise of far-right forces in the country. Report from Vila Gazdasag. but Tisza Party: 7 seats It was a surprise on the international stage.
The forint's decline appears to be driven by broader future gains in the dollar and inflation data on Monday morning. Inflation came in at 4% in May, below expectations of 4.2%, suggesting the National Bank of Hungary has room to cut rates further, which could send the forint lower. By 11:30 a.m., the forint was down 0.5% against the euro, at 393.4.
More than the election results, the forint market will be excited this week. Wednesday's Federal Reserve decision on the US base interest rate is crucial. While the market is confident that there will be no rate cuts anytime soon, the Fed's announcement will have a major impact on the forint's short-term trajectory.
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Featured Image: Deposit Photo
