French Election Uncertainty

By Nick Harrison

The General Election in the UK last week saw a widely expected landslide victory for the Labour party and therein an end to 14 years of Conservative Party government.  The general consensus though was that the many of the votes were not necessarily pro-Labour, but more of an active vote to a change a government who had lost the trust of the public for a number of reasons:

Firstly the Brexit referendum.  David Cameron, the PM at the time, called for a referendum to decide whether the UK stayed within the EU or became independent from the European Union.  Despite the promises made before the referendum, the Conservatives struggled to show the benefits of Brexit.  Whether directly related or not, the UK has since faced rising living costs, lower household budgets and skyrocketing accommodation prices.

Secondly, the immigration confusion.  The Conservatives tried to implement a policy of sending illegal immigrants to Rwanda for processing. This never seemed viable or indeed real and was therefore not implemented, showing further weakness in the governments policies.

Next up, the Covid debacle.  Boris Johnson, the PM at the time was initially blamed for allowing the virus to spread for herd immunity, which caused casualties to soar.  Public outrage then followed after reports of parties held at number 10 during lockdown contradicted government policy.  Johnson was soon voted out by his own party.

Then there was Liz Truss.  Her decision to allow Kwasi Kwateng’s mini-budget to move ahead proved fatal for her as it caused financial turmoil and saw the Pound sink to record lows against US Dollar.

The initial reaction in the FX market has therefore been one of confidence in the Pound as it sees a potential stabilising from the turmoil left by the previous government.  Lots of work is to be done though, so time will tell as to whether Kier Starmer delivers the promises he has given to the voting public.  He goes to work this week with a very full agenda of issues to address, so we will see how things pan out for his new government.

French turmoil

Last week we saw the far right wing party led by Marine Le Pen position themselves as leaders in the French elections.  Last night and this morning though, the exit polls saw their popularity drop into 3rd place as a huge swing in favour of their opponents saw the far left take the lead and President Macron’s Renaissance party take second place.  This has caused potential instability in the Eurozone as France being the second largest economy is now looking at a hung parliament.

French Prime Minister Gabriel Attal said yesterday that he would offer to resign on Monday, but he opened the door to leading a caretaker government during the Paris Olympic Games, which begin on July 26th.

Quite how the French are going to deal with a hung parliament is anyone’s guess right now.  All 3 parties have a strong disliking for each other and it is surely going to be an almighty challenge to find a way of managing the country.  “Instability, Political Chaos and Gridlock” are the words being used to describe the situation by the media right now and this will surely rumble on for some time to come.

This could all provide volatility in the FX market and we could see a some strong rate movements to reflect this. The Euro dropped a little as the news came through last night and this morning, but still remains in the relatively tight range we have seen for some time now. Not all is certain though, so please make sure you speak to your currency consultants at A Place In The Sun Currency for the most updated information about how the political scene is effecting the exchange rates.

This week

It’s actually quite a quiet week as far as economic data is concerned.  We have the month-on-month UK GDP figure released on Thursday and the US inflation data released that afternoon, but it’s likely that any market movement will be dictated by the political situation in France this week.

Data releases this week

Tuesday & Wednesday at 3pm     – US Federal Chairman Powell testifies about the US economy

Thursday 7am                                      – UK month on month GDP figure released

Thursday 1.30pm                               – US CPI (Inflation figure) released

Thursday 1.30pm                               – US Unemployment claims

Friday 1.30pm                                      – US Producer Price Index

Friday 3pm                                             – US Consumer Sentiment