By Harry Robertson and Dhara Ranasinghe
LONDON (Reuters) – The euro fell on Sunday after exit polls for the final round of the French parliamentary elections pointed to a hung parliament, with the left wing New Popular Front grouping unexpectedly set to win the most seats.
Europe’s single currency was last down 0.3% at $1.08, although volumes remained thin as early trading in Asia got underway. It also dipped against sterling and the yen.
“It looks like the anti-far right parties really got a lot of support,” said Simon Harvey, head of FX analysis at Monex Europe.
“But fundamentally from a market perspective, there’s no difference in terms of the outcome. There’s really going to be a vacuum when it comes to France’s legislative ability.”
Analysts said a period of volatility and uncertainty was expected to continue as investors now assess what final form the parliament will take, and how much of their policies the leftist alliance will be able to implement.
The New Popular Front alliance says its first moves would include a 10% civil servant pay hike, providing free school lunches, supplies and transport while raising housing subsidies by 10%.
The euro had climbed last week as polls suggested a hung parliament was likely, assuaging fears of a far right victory, after dropping sharply – along with stocks and bonds – when Macron called the elections in early June.
“The bond market is going to be the real place to look at. There might be a bit of a gap lower in French bonds (prices),” Harvey added.
(Reporting by Harry Robertson; Editing by Dhara Ranasinghe)
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