French Political Crisis Drags Down the Euro
Last week, political upheaval in France spurred a sell-off of the euro in the markets. French Prime Minister Michel Barnier's failure in the no-confidence vote led to the collapse of the government, plunging the eurozone's second-largest economy into uncertainty. This situation intensified negative sentiment towards the euro in the market.
Meanwhile, a series of dovish remarks by European Central Bank officials further pressured the euro's performance. Market expectations broadly suggest that the ECB will cut interest rates by 25 basis points at this week's policy meeting and may maintain a cautious monetary policy in the coming months. Investors will closely watch the ECB's forward guidance; if it indicates a continued easing policy, the euro may face greater downward pressure.
Pound Supported by Data and Policy
The pound exhibited significant volatility last week. Despite dragging effects from weak UK manufacturing PMI data and a slowdown in consumer activity, an upward revision of the UK services PMI helped the pound rebound midweek. UK Prime Minister Keir Starmer outlined a series of infrastructure development plans, instilling confidence in the market and further supporting pound sentiment.
This week, the latest UK GDP data is the market's key focus. If the data indicates economic contraction, the pound may face greater downward pressure in later trading sessions.
Market Outlook
Going into this week, with the ECB's latest interest rate decision looming, the euro-pound exchange rate may continue its downward trend. Especially if the ECB hints at further easing ahead, the euro might endure more selling pressure.
Meanwhile, pound investors need to be cautious of risks posed by GDP data. If the data shows a slowdown in UK economic growth, the pound's current advantage may be reversed, and exchange rate movements could face greater uncertainty.
The focus of this week's forex market is on the ECB's policy direction and UK economic data performance. The competition between the euro and the pound will continue to be driven by both policy and data, potentially increasing market volatility further.
