Global Currency Movements Amid Political Uncertainty and Economic Shifts

The euro stabilized on Monday after initial losses from French elections outcomes indicated a hung parliament, while the dollar struggled following weak U.S. payrolls data. Sterling rose post-Labour's victory, and the Australian dollar reached a peak. Investors are concerned about potential political instability in France and its effects on the euro zone.

The euro steadied on Monday, recovering from overnight losses triggered by projections from France's election pointing to a hung parliament, while the dollar remained soft. The U.S. currency was still reeling from Friday's unexpectedly weak payrolls data, heightening bets that the Federal Reserve might soon begin cutting interest rates.

Sterling rose to a 3-1/2 week high against both the dollar and euro, building on gains after the Labour Party's landslide victory ended 14 years of Conservative rule. The Australian dollar benefited from the greenback's weakness, climbing to a six-month peak.

The yen maintained its position above last week's nearly 38-year low against the dollar but weakened from the day's highs. The euro was flat at $1.0838, having earlier dropped by as much as 0.4% due to investors weighing the consequences of a hung French parliament.

Several surprises emerged in the projected results, including the leftist New Popular Front (NFP) expected to finish first, and Marine Le Pen's nationalist National Rally (RN) coming last, despite being a frontrunner. Polls suggest the left might secure 184 to 198 seats, short of the 289 needed for an absolute majority. President Macron's centrist alliance is forecasted to gain 160 to 169 seats, with RN and its allies expected to get 135 to 143 seats.

Ken Cheung, director of FX strategy at Mizuho Securities, noted, "The shock of a far-right party gaining a majority was avoided in the short term, but the rise of left-wing parties and increasing political uncertainties could raise concerns over French fiscal deficits and eurozone stability in the medium term." The euro slightly weakened against the Swiss franc, often seen as a haven during times of political instability.

The European single currency was down 0.1% at 0.9705 francs, its lowest in a week but still near last week's one-month high. Andrzej Szczepaniak, a Nomura senior macroeconomist, commented that the election results are unlikely to have long-term negative impacts, expecting the euro/Swiss exchange rate to reach parity over the summer.

The dollar index, measuring the U.S. currency against six major rivals including the euro, sterling, and yen, was flat at 104.91. It was recovering from a nearly 1% slump exacerbated by Friday's softer U.S. jobs report. Traders now foresee a 76% chance of a rate cut at the Federal Reserve's September meeting, up from 64% a week ago, with another cut expected in December.

The dollar was last up 0.14% at 161.04 yen, still below last week's high of 161.96. Sterling held steady at $1.2814, after rising to its highest since June 12. Meanwhile, the Australian dollar edged down 0.16% at $0.6737, having earlier reached $0.67615, its highest since January 4, amid contrasting risks of further central bank rate hikes and anticipated U.S. Fed rate cuts.

(With inputs from agencies.)