Euro: Political risks keep EUR under pressure against US Dollar – MUFG

MUFG’s Lee Hardman highlights that the Euro remains under selling pressure, with EUR/USD testing support at 1.1200 as Spanish Prime Minister Pedro Sanchez calls an early election for November 29. Opinion polls point to gains for the People’s Party, potentially in coalition with VoX. Hardman limited additional downside from Spain, with Euro performance into year-end driven more by French government bond market developments and contagion risks.

Euro pressured by Spain and France risks

"The euro continues to remain under selling pressure at the start of this week with EUR/USD testing support at the 1.1200-level overnight."

"The latest opinion polls have been indicating that the centre-right People’s Party are well positioned to positioned to become the biggest party after the election although would require support from other parties without a majority."

"While the snap election adds to political uncertainty in the euro-zone in the near-term, we do not expect the outcome to materially add to downside risks for the euro."

"The performance of the euro heading into year-end will depend more on the fallout from the French government bond market sell-off including evidence of contagion and how policymakers react with risks currently skewed towards further weakness."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)