Sunday’s final round of the French elections resulted in a surprise few could have predicted. After the far right won last week’s first round of voting, the hastily mobilised alliance between the far left and the green parties secured the most seats, but not enough to secure a majority. Marine Le Pen’s RN was consigned to a distant third place.
A period of political deadlock now looms as France enters a complex power sharing arrangement known as ‘cohabitation’. While the vote was good news for Emmanuel Macron, the euro fell sharply against its peers in overnight trading. There are fears that the left-wing alliance could have just as bad an impact on the country’s delicate finances as the far right.
The highest turnout since 1981 reflected the significance of the vote. Even Kylian Mbappe and the French football team weighed in on the subject, and the sense this morning was that France had dodged a bullet. However, just weeks after the country received a stinging warning about the size of its deficit, there are also concerns that this could have a negative impact in the longer term.
The state of the euro was in stark contrast to the zen-like calm that hovered over sterling. The UK election brought no real surprises, with the Labour party securing a sizeable parliamentary majority, as predicted. Events unfolding as expected helped the pound steadily cement its gains over the euro and the US dollar.
At the end of last week, GBP/USD climbed by half a cent to reach its highest in nearly a month. GBP/EUR also trended upwards, finishing the week’s business up by a similar amount.
While the discourse in Europe was dominated by all things election, we did have some economic data to chew over last Friday. US non-farm payrolls increased by 206k in June, down from May’s 218k but well above forecasts of just over 160k.
But while things were booming in the American job market, wages were on the decline. Average earning increases year-on-year fell to 3.9%, below the last read of 4.1%. Unemployment surprisingly ticked up from 4% to 4.1%, the highest since November 2021.
As the dust settles from last week, currency markets will be left to pick up the pieces amid great uncertainty. At times like these, volatility’s shadow seems to loom whichever way you look. Whatever happens, you can rely on us to protect your budget from risk, however it arrives.
Our latest Quarterly Forecast for July to September is published this week, and we aren’t exactly short on material. We’ll be looking at how Labour’s win could impact the pound, what the French elections mean for Europe, as well as analysing the latest predictions from leading banks. Don’t miss out — it will be a good one!
Here’s what to look out for this week…
German balance of trade numbers arrive this morning, although their impact is likely to be dampened by political events in France.
Tuesday features speeches from Bank of England and Federal Reserve policymakers, before Jerome Powell steps onto the stage on Wednesday.
Thursday is a big day for data. We’ll get UK GDP for May along with US inflation in June.
US PPI and the Michigan Consumer Sentiment survey finish things off on Friday.
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