The euro fell sharply to its lowest level against the pound for almost two years overnight, hit by political uncertainty following European Parliament elections. One Euro was worth 84.53 pence at one point after Eurosceptic nationalist parties made the biggest gains in Sunday’s election, and after Emmanuel Macron called a shock legislative election having been trounced in the vote by the far-right.
It is the lowest since August 2022, and a boon to British holidaymakers set to vacation in Europe this summer who will get more for their money in the Eurozone.
The drop came after the French president suffered a humiliating defeat to Marine Le Pen’s National Rally party, which took home a projected 31.5% of the vote. Far right parties also notched a string of high-profile wins elsewhere in the bloc, finishing first in France, Italy and Austria, and coming second in Germany and the Netherlands, according to preliminary results.
As the results came in, the euro also hit a one-month low against the dollar – down 0.44% at $1.0753 – and has now slid more than 2.5% against the dollar this year. French bond prices also fell following Macron’s decision to call snap elections. Yields were pushed to their highest in two weeks, around 3.17%, while Paris blue-chip stocks dropped 2%, led by steep losses in the likes of lenders such as BNP Paribas and Societe Generale. Europe’s benchmark STOXX 600 also fell 0.7%.
The euro’s struggle means a boost for British holidaymakers planning on travelling to the eurozone this summer. Every year, millions leave the shores of the UK for the beaches of the Mediterranean or the sights of Europe’s historic cities. Following the sharp drop in the euro against the pound, British tourists will see their money going even further this year in the likes of Spain and Italy which offer more affordable destinations for Brits when compared with a ‘staycation’ at home. With an uncertain political future ahead for Europe, experts have suggested the euro could continue to be turbulent.
Centre, liberal and Socialist parties were set to retain a majority after the elections, but eurosceptic nationalists made the biggest gains, raising questions about the ability of major powers to drive policy in the bloc. Making a risky gamble to reestablish authority, Macron called a parliamentary election – with the first round on June 30 – in the wake of the results. If the far-right National Rally party wins a majority, Macron would be left without a say in domestic affairs. ‘That is probably somewhat bad news for markets,’ said Berenberg chief economist Holger Schmieding. ‘It introduces an unexpected element of uncertainty.’
Kathleen Brooks, research director at trading platform XTB, told Reuters the ‘shock factor’ from Macron’s decision to call a snap election would weigh on European markets on Monday, but who prevailed in the actual vote might carry more weight. ‘The question for traders of the euro and European stock markets is just how radical will Marine Le Pen and Jordan Bardella be if they do well in the French parliamentary elections?’ she said, referring to two far-right leaders in France . The gap between German and Italian debt, which investors see as a measure of risk appetite in the broader region, also widened to 137 bps. ‘Obviously, the snap election is a new source of uncertainty, which should have some negative impact on economic and market confidence, at least in France,’ said Jan von Gerich, chief market analyst at Nordea. But he noted that EU election results do not always translate into domestic ones, due to different voting systems and as EU elections tend to attract a larger protest vote.
Peter Cardillo, chief market economist at Spartan Capital Securities in New York, said it would take a huge surge in the far right for the euro to weaken substantially. The European Central Bank last week delivered its first rate cut in five years and the currency is down almost 2.5% on the dollar this year, mostly driven by the relative outlooks for interest rate cuts in the euro area and United States. In France, where concerns about the country’s high debt levels have grown, the implications of renewed political uncertainty for the economy could also be in focus. Standard & Poor’s last month cut its rating on France’s sovereign debt, delivering a painful rebuke to the government’s handling of the strained budget days before the EU election. More than 360 million Europeans across 27 countries were eligible to vote to elect the 720-seat legislature. The next parliament, and the next commission, will have to deal with Russia’s continuing war in Ukraine, global trade tensions marked by US-China rivalry, a climate emergency and the prospect of a disruptive new Donald Trump presidency. Following the results, European Commission President Ursula von der Leyen vowed to ‘build a bastion against the extremes from the left and from the right.’
Her centre-right European People’s Party (EPP) scored top place. As the EPP’s lead candidate, von der Leyen wants a second mandate running the commission. EU leaders are to start deciding whether to name her or another choice as early as June 17, ahead of a June 27-28 summit. Macron, meanwhile, called national legislative elections for June 30, a month before the Paris Olympics. ‘I cannot act as if nothing had happened,’ he said in a national address. The French people, he said, must now make ‘the best choice for itself and future generations’. Macron himself will see through the rest of his current – and final – presidential term which ends in 2027, at which point Le Pen has ambitions of succeeding him. The French drama electrified an already charged day as votes were cast and tallied, and attention was focused on how well the far right fared in each country.
In Germany, the EU’s biggest economy, the scandal-plagued, fiercely anti-immigrant AfD party handed dismal news to Chancellor Olaf Scholz by beating his Social Democrats 16 percent to 14 percent. The AfD – judged too extreme for Le Pen, who broke off an alliance with it just before the elections – was kept in place by the opposition CDU-CSU bloc, which won 29.5 percent, while the Greens won 12 percent. The far-right parties in the Netherlands and Belgium both also gained ground, but came up short compared with voter intentions credited to them before the elections. In Austria, the far-right Freedom Party led the count according to exit polls, the first time the group has topped a nationwide ballot in the Alpine country. In Italy, the ruling post-fascist Brothers of Italy of Prime Minister Giorgia Meloni did better than predicted, coming out on top with 28 percent. The result made her one of the rare major European leaders to emerge strengthened from the polls. In Hungary, almost-final results showed Prime Minister Viktor Orban’s far-right Fidesz party headed for what could be its worst score in its 14-year rule, a still substantial 44 percent but well down on the 52 percent it won in 2019.
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