The euro rebounded on Monday after a weekend EU opinion poll showed a surge in far-right support and a general election in France, but analysts expect the single currency to remain firm.
The euro zone's common currency was down 0.3 percent at $1.0736 around 1415 GMT, while the Paris CAC 40 stock index was down 1.9 percent on shock over President Emmanuel Macron's call for elections.
XTB analyst Kathleen Brooks said investors were concerned about a political “far right shift” in the region and the “surprise factor” of a surprise general election in France.
President Macron announced on Sunday he was dissolving the National Assembly, the lower house of France's parliament, after reports that far-right parties including the National Rally (NR) had won nearly 40% of the French referendum.
The NR is led by 28-year-old Jordan Bardella, whose party leader is Marine Le Pen, runner-up in the last two presidential elections.
France is due to vote to elect a new National Assembly on June 30, with a second round of voting scheduled for July 7, two years after Mr Macron failed to win an absolute majority.
– Economic uncertainty –
The euro was hit as investors worried that political turmoil in France, a key founding member of the eurozone, could hurt President Macron's policies.
“The prospect of a Macron presidency and Le Pen and Bardella taking control of parliament could thwart Macron's much-needed economic reform plans in France, which could have eased concerns about debt,” Brooks told AFP.
These concerns were highlighted by Standard & Poor's recent downgrade of France's long-term sovereign debt rating.
Furthermore, July's elections could produce a far-right prime minister.
“The French parliamentary elections are likely to produce a prime minister from another party,” said Jane Foley, an analyst at Rabobank.
“This will change the direction of French politics, including on the fiscal policy agenda and possibly on issues such as EU enlargement.”
– Euroscepticism –
The growing popularity of far-right parties has also stoked concerns about growing euroscepticism on the continent.
Critics warn that this could put further strain on the euro, which was created in 1999 as a key tool for strengthening continental unity.
“The euro was created as a product of the European integration process and is inconceivable without European integration,” said Ulrich Leuchtmann, an analyst at Commerzbank.
“This clearly does not make the euro more attractive than national currencies such as the US dollar or the British pound.”
Kit Jacks, an analyst at Societe Generale, said he did not think the single European currency would fall below parity again “even if Macron's bet fails.”
“I can imagine the euro will fall, but I think it will be fairly short-lived,” he predicted.
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