Euro drops, French bonds hit post-election uncertainty

The euro and French bond futures experienced a downturn on Monday due to the emergence of a hung parliament following the recent French elections, signalling a period of market uncertainty and potential gridlock.

The euro declined by approximately 0.2 per cent during Asian trading, settling at $1.0819, while French bond futures dropped 20 ticks, leading to an implied yield of 3.13 per cent.

Market analysts noted some relief that Marine Le Pen’s far-right National Rally (RN) secured third place, contrary to earlier predictions that suggested a stronger finish.

However, concerns linger about the left’s potential reversal of President Emmanuel Macron’s pro-market reforms, particularly regarding France’s debt, which was 110.6 per cent of GDP in 2023.

Simon Harvey from Monex Europe highlighted the lack of a decisive outcome, suggesting that legislative gridlock could impede France’s economic policies.

The election results indicate a fragmented assembly with no clear majority, leaving France’s 577-seat parliament divided among the left, centrists, and far-right. Polls forecast the left securing 184–198 seats, Macron’s centrist alliance 160–169 seats, and the RN and allies 135–143 seats.

Cash trading for French bonds and stocks will resume on Monday morning, with moderate movements expected in broader financial markets.

Attribution: Reuters.