Currently, the market’s base case appears to be a hung parliament, although it would also risk political paralysis for the remainder of President Emmanuel Macron’s tenure to 2027.
Stocks rallied, particularly in France where the CAC 40 jumped more than 1%. Some payback might be the immediate reaction on Tuesday morning, with pan-European Stoxx 50 futures pointing down about 0.1%.
The euro remains firm, even in the face of renewed dollar strength. Other greenback rivals are not proving so resilient, particularly the yen, which is still languishing close to a 38-year trough, keeping traders of high alert for another round of official Japanese intervention.
The dollar-yen pair is particularly sensitive to long-term U.S. yields, which have spiked amid the growing risk of a second Donald Trump presidency, which traders and analysts equate with higher tariffs and bigger spending.
The U.S. currency and yields are also elevated based on the idea that Federal Reserve policy isn’t going to loosen at an accelerated pace, with inflation still pretty sticky and the job market quite tight.
A parade of potentially crucial employment data begins on Tuesday with the JOLTS job openings report, a Fed favourite, followed by ADP numbers a day later and the all-important monthly payrolls figures on Friday.
Fed Chair Jerome Powell has the opportunity to present his latest take on the economy when he participates in a panel at an ECB forum in Sintra, Portugal, later in the day.
