How might the French elections impact the euro?
Posted by Matthew Andrews on June 28th, 2024.
The resulting political uncertainty plunged the euro to multi-month lows against many of its peers in the second half of June, amid fears the election could have wide ranging effects on policy, such as taxation, and France’s relationship within the European Union.
With the future uncertain and the French government likely to be highly fragmented, the euro could experience continued volatility.
Election timeline and expectations
The first round of the French election is due to take place on 30 June, with the second round to follow one week later, on 7 July.
Current polling data shows a deeply divided political landscape. Macron’s centrist party holds less than 20% support, while the far-right National Rally has around 31% support. Additionally, the left-wing New Popular Front, formed in response to the snap election, has garnered 25-28% support.
This points to a possible hung parliament, which may perhaps be the most detrimental outcome for the euro as markets are worried that divisions in France’s National Assembly could lead to political paralysis in the Eurozone’s largest economy.
Taxation and economic policies
All major political parties in France have begun to outline their economic policies, which could have a wide range of impacts on the French economy and the euro.
Taxation remains a key point of contention. Both the left-wing coalition and the far-right advocate reducing VAT on energy and food and reintroducing a wealth tax. Conversely, Macron’s centrist party has pledged not to increase corporate or household taxes.
The outcome of the election could have notable implications for the euro. Maintaining stable corporate taxes, as proposed by the centrist party, could benefit French businesses and provide more stability for the euro. On the other hand, reducing VAT could enhance household spending power, potentially boosting the economy and lifting EUR exchange rates.
The impact on the European Union
Both the National Rally and the New Popular Front include numerous eurosceptic politicians and policies that could negatively affect the European Union.
While these parties no longer advocate leaving the EU they have been openly critical in the past, with the National Rally highlighting EU reform in their foreign policy agenda. Their proposed spending plans also diverge sharply from Macron’s policies and could lead to conflicts with the EU.
The European Commission has already cautioned the future French government against increased spending. If the National Rally or New Popular Front gains significant power, their expansive spending plans could strain France’s relationship with Brussels.
How TorFX can help
If you are concerned about potential volatility in the euro following the French election, you may want to take steps to limit your exposure to currency risks.
In addition to benefitting from excellent exchange rates and no transfer fees our clients can take advantage of our highly flexible transfer solutions.
For instance, with a Forward Contract, you can fix an exchange rate for up to two years. While locking in a rate in this way would mean you’d miss out if the exchange rate strengthened, your future transfer would be protected from any negative market movements.
Additionally, you can transfer your money wherever and whenever, online or through our app.
If you would like to discuss your currency options, please contact our team on +44 (0) 1736 335 250. Alternatively, you can create a free account in minutes and start checking live exchange rates 24/7.
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