JPMorgan analysts have assessed the potential impact of the French political crisis on EUR/USD, concluding that the currency pair faces only modest headwinds from European political developments.
The bank estimates a 1-1.5% discount already embedded in EUR/USD related to French election uncertainty, with additional knee-jerk weakening of 0.5-0.75% possible if Marine Le Pen’s party secures a relative or outright majority, though such moves would likely be temporary.
JPMorgan considers a left alliance victory would trigger a more significant currency impact of 2-4% weakening, but views this outcome as less probable, while scenarios involving Macron’s party securing a majority remain low probability events.
The analysis suggests that U.S. economic factors, including the September 5th payrolls report and the subsequent Federal Open Market Committee meeting on September 17th, will likely have greater influence on EUR/USD than French political developments.
Despite these near-term challenges, JPMorgan maintains a bullish outlook on EUR/USD, noting that real rate differentials continue rising in favor of the euro, pushing fair value to 1.16, the highest level this cycle.
