The euro experienced a significant decline in early trading on Monday following initial projections indicating a left-wing coalition was poised to win the French legislative elections.

The currency fell as much as 0.4% amid growing concerns about France’s financial future under a government led by the New Popular Front (NPF).

In a surprising turn of events, the NPF emerged as the likely front-runner, contrary to earlier expectations that Marine Le Pen’s far-right National Rally would secure the most seats.

Instead, the National Rally is now projected to come in third, following President Emmanuel Macron’s centrist alliance.

French government bond futures also underperformed compared to their German counterparts, reflecting market anxiety over the potential shift in France’s economic policy.

One of the NPF bloc’s leaders, Jean-Luc Mélenchon, has vowed not to negotiate with other parties to form a government and to stand firm on the coalition’s agenda, which includes substantial increases in public spending. Such measures are expected to create friction with the European Union.

Krishna Guha, a strategist at Evercore ISI, noted the market’s mixed reaction in a client note.

“The show of support for the left/far-left and calls by far-left leader Mélenchon to enact the full hard-left NPF agenda will unsettle some investors,” he wrote.

“But we view the outcome as broadly market-friendly, with National Rally-related risks disappearing for now and the left/far-left NPF set to fall far short of a majority with essentially no prospect of being able to enact its agreed alliance agenda.”

Asian markets reacted to the news with a downturn. Shares in the region retreated, and South Korea’s three-year bond futures reached their highest levels in nearly two years.

In addition, Samsung Electronics Co. workers are expected to initiate a major labor action, the most significant in the company’s history.

Meanwhile, the People’s Bank of China announced it would conduct temporary bond repurchase operations as necessary to maintain adequate liquidity in the banking system. This move is intended to ensure stability amid the broader economic uncertainty.

Traders are also keeping a close eye on upcoming events in the United States. Federal Reserve Chair Jerome Powell’s congressional testimony and new inflation data later this week are anticipated to influence market sentiment further.

Following a soft jobs report, there is increasing speculation that the Federal Reserve might ease policy as early as September.

The recent nonfarm payrolls data indicated a slowdown in US hiring and wage growth, coupled with a rise in the unemployment rate to its highest since late 2021.

This has bolstered expectations of a potential rate cut by the Federal Reserve, adding another layer of complexity to the global economic outlook.

Back in the US, President Joe Biden is facing renewed challenges within his own party as he gears up for a reelection campaign. Despite achieving his best showing in recent polls, Biden continues to navigate a turbulent political landscape.

As the week progresses, market participants will be closely monitoring rate decisions from central banks in New Zealand and South Korea, as well as earnings reports from major US banks, including JPMorgan Chase & Co.

These developments, coupled with Powell’s testimony and subsequent remarks from Fed officials, are expected to provide critical insights into the future direction of economic policy.

In the commodities market, oil prices ticked up ahead of reports from the Organization of Petroleum Exporting Countries and the International Energy Agency, which are expected to shed light on global crude balances.

Also, traders are tracking the path of Tropical Storm Beryl as it approaches Texas, which could impact oil supply and prices.

Gold, on the other hand, eased off the six-week high it reached last week, reflecting the fluctuating market dynamics.

As the political landscape in France and economic indicators globally continue to evolve, investors remain vigilant, adjusting their strategies to navigate the uncertainties ahead.

The Nigerian naira continues its downward spiral, making its ninth consecutive day of depreciation against the US dollar and the worst-performing currency in the first half of 2024.

The naira weakened by 0.2% to 1,510 per dollar by the close on Thursday, according to FMDQ.

This persistent decline represents the longest losing streak since July 2017, resulting in a year-to-date devaluation of 40%.

The naira’s performance stands out as the worst among global currencies tracked by Bloomberg, aside from Lebanon’s pound, which is undergoing severe economic turmoil and dollarization.

Analysts attribute the naira’s plunge to a combination of steep devaluation, insufficient dollar liquidity, and market volatility, which have hampered efforts to stabilize the currency.

“While the naira is undervalued and has seen significant adjustment, the supply of dollars needs to improve for the currency to be supported,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank Plc in London. “Portfolio inflows have yet to pick up, even amid still-attractive local rates.”

Nigeria has been grappling with chronic foreign-exchange shortages and instability, largely due to reduced crude oil production and a lack of economic diversification.

The local unit has lost approximately 70% of its value against the dollar since June 2023, following policy changes introduced by President Bola Tinubu’s administration aimed at attracting foreign inflows to revive the economy.

The currency experienced heightened volatility between mid-April and May, driven by the imbalance between demand and supply for the greenback.

However, this volatility moderated in June with an improvement in dollar inflows.

Central Bank Governor Olayemi Cardoso recently expressed optimism about the future stability of the naira.

“The currency’s volatility may be a thing of the past,” Cardoso stated, highlighting efforts to promote investor confidence.

Since assuming office in September, Cardoso has increased interest rates by 750 basis points to 26.25%, cleared a foreign-exchange backlog, and negotiated multilateral dollar inflows to support the naira.

Despite these measures, the naira’s decline underscores the challenges faced by Nigeria’s economy. The currency’s depreciation has been accompanied by inflationary pressures, complicating monetary policy efforts and economic planning.

Besides the naira, other African currencies such as Egypt’s pound and Ghana’s cedi have also been among the world’s worst performers in the first half of 2024.

“Adjustment and rebalancing in 2024 after years of a heavily managed and misaligned currency regime account for the weakening of these currencies,” Gadio noted. For the naira, “what will matter going forward is whether it can stabilize on improving foreign-exchange inflows and perhaps see some appreciation.”

The ongoing decline of the naira highlights the urgent need for comprehensive economic reforms and effective foreign-exchange management to restore confidence in the currency and ensure sustainable economic growth. As Nigeria navigates these challenges, the path to stabilization remains fraught with uncertainty.

In the aftermath of the first US presidential debate, the dollar saw an uptick in Asian trading on Friday as markets perceived former President Donald Trump as the debate’s victor.

The Bloomberg gauge of the US currency rose by as much as 0.2% before the movement pared back, positioning the index for its sixth consecutive weekly gain.

President Joe Biden’s stumbling performance during the early exchanges of the debate has raised concerns about his capability to secure a victory against Trump in the upcoming November election.

These concerns are echoed by Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney, who stated, “Markets likely extrapolated today’s debate outcome to the actual election outcome in November.”

Trump reiterated his pledge to impose 10% duties on imports if he wins the election, a policy expected to exert upward pressure on inflation.

This potential inflationary pressure could delay interest rate cuts that would otherwise weigh down the dollar.

“Trump’s policies are likely to add to inflationary pressures and escalate trade tensions, thereby supporting US interest rates and the safe haven US dollar,” Kong added.

The debate’s outcome also impacted other financial metrics. Asian currencies remained mostly steady, while the Mexican peso initially dropped almost 1% before recovering to a 0.2% loss.

Treasury yields edged higher, and US equity futures posted modest gains ahead of the Federal Reserve’s preferred inflation measure, due later on Friday.

Despite the rocky start for Biden, Vice President Kamala Harris emphasized that the President finished the debate strong.

However, PredictIt’s live betting odds shifted in Trump’s favor, with his chances of winning the November vote rising from approximately 53% to 58% after the debate.

While US consumer spending data due on Friday could lead to a short-term weakening of the dollar if it shows easing, the dollar is likely to remain robust into the following week.

Investors are bracing for election risks in France and the UK, according to Mahjabeen Zaman, head of FX research at Australia & New Zealand Banking Group in Sydney.

Market sentiment in Asian equities was largely positive, with most regional stock markets advancing during the debate.

Chinese benchmarks recovered from early losses and moved away from technical correction territory, as the absence of hawkish comments on China was seen as a positive surprise by traders.

The Hang Seng China Enterprises Index rose by as much as 0.8%.

Redmond Wong, market strategist at Saxo Capital Markets, described the outcome as a “positive surprise for this part of the world, but only moderately so.”

He added that the political consensus on dealing with China extends beyond the presidential candidates to Congress, suggesting that some escalation of tensions could still occur in the coming months.

Xin-Yao Ng, director of investment at abrdn, echoed this sentiment, stating that while the lack of hawkish comments on China was “probably a surprise,” the bipartisan stance on China policy means there is limited ground for the candidates to attack each other on this issue.