EUR/USD WEAKENS AS FRENCH ELECTION UNCERTAINTY, FED’S HAWKISH NARRATIVE WEIGH

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  • EUR/USD declines to 1.0700 as the Euro weakens amid uncertainty over the French elections.
  • ECB policymakers see a bumpy inflation path towards the 2% target.
  • Fed’s maintenance of a hawkish outlook offsets the impact of soft US inflation data.

EUR/USD extends its downside below the round-level support of 1.0700, touching the lowest level in more than a month during Friday’s European session. The major currency pair weakens as the Euro remains under pressure due to deepening French political uncertainty ahead of the upcoming legislative elections. 

The Euro has faced turmoil this week after French President Emmanuel Macron's called for a snap election on Sunday after suffering a defeat from Marine Le Pen's far-right National Rally (RN) in parliamentary elections. There is a slight possibility that the Centralist’s alliance could make a coalition government as the RN party misses an absolute majority, according to recent polls.

On the monetary policy front, European Central Bank (ECB) policymakers continue to push back expectations of subsequent rate cuts as the path towards the 2% inflation target looks bumpy amid concerns over sustained wage growth. 

On Thursday, ECB Governing Council member Bostjan Vasle said that more rate cuts are possible if the disinflation process continues. However, Vasle also warned that the process could slow down as wage momentum is relatively strong.


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