Euro under pressure amid Spanish election uncertainty and French bond risks

The Euro is facing continued selling pressure, with the EUR/USD exchange rate testing the support level of 1.1200. This pressure comes as Spanish Prime Minister Pedro Sanchez announces an early election set for November 29. Recent opinion polls suggest that the center-right People’s Party could emerge as the largest party, though they would likely need support from other parties to form a majority.

Analyst Lee Hardman of MUFG notes that while the snap election introduces short-term political uncertainty in the Eurozone, it is not expected to significantly impact the Euro’s value. Hardman believes that the Euro’s performance towards the end of the year will be more influenced by developments in the French government bond market and any potential contagion risks.

Hardman also limits the additional downside risks from Spain, emphasizing that the Euro’s trajectory will largely depend on the fallout from the French bond market sell-off and how policymakers respond. The current risks, according to Hardman, are skewed towards further weakness in the Euro.