Article rewritten and expanded from the original source by Ambar Warrick, Investing.com: “Goldman Sachs Maintains EUR/USD View Despite French Political Turmoil”
Title: Goldman Sachs Holds EUR/USD Forecast Steady Amid French Political Unrest
Goldman Sachs reiterated its constructive outlook on the euro despite increasing political instability in France, stating that it does not expect the turmoil to result in long-term impacts on the euro currency’s exchange rate. This assurance came in a recent client note, just as markets absorbed the surprise announcement of snap legislative elections by French President Emmanuel Macron.
The euro has recently come under pressure due to elevated political risk in France, following notable gains by far-right parties in the European Parliament elections. Despite this escalation in uncertainty, Goldman Sachs has chosen to maintain its EUR/USD forecast, underscoring its long-game view of the pair and the temporary nature of market reactions to political flare-ups.
Highlights of the Bank’s Position
Goldman Sachs made several points supporting its decision to maintain its forecast for the EUR/USD pair:
– The political volatility in France is expected to be relatively contained.
– Current events are not anticipated to bring significant long-term changes to European economic policy.
– The primary driver of EUR/USD will remain interest rate differentials and policy trends between the European Central Bank (ECB) and the Federal Reserve, not French domestic politics.
Political Events in France Trigger Market Concerns
The European parliamentary elections significantly shifted the landscape of European politics recently. Far-right parties, notably France’s National Rally and Italy’s Brothers of Italy, made substantial gains. In the case of France, Marine Le Pen’s National Rally defeated Macron’s Renaissance party by a wide margin.
Macron’s reaction — a bold and unexpected move to dissolve parliament and call for legislative elections later this month — shocked markets and introduced a fresh layer of uncertainty. Financial markets swiftly responded with:
– Declines in French equities, including banking shares.
– A widening in French-German bond yield spreads, reflecting heightened perceived risk on French government debt.
– Mild pressure on the euro as traders priced in the potential for an unstable political environment in Europe’s second-largest economy.
Despite these developments, Goldman Sachs asserts that the eurozone’s broader macroeconomic fundamentals and monetary policy decisions remain the overriding factors influencing the EUR/USD trend.
EUR/USD Price Action and Market Reactions
In response to the recent political headlines, the EUR/USD dipped sharply following Macron’s announcement, falling under 1.0750 in intraday trading. The pair briefly touched the 1.0720 area before finding some buyers and stabilizing slightly. Despite this weakness, price action has largely stayed within a well-defined two-month range, suggesting markets are yet to make a decisive move on the situation.
Goldman Sachs noted that while short-term volatility is always a risk in the FX markets, the political developments in France are unlikely to maintain pressure on EUR beyond the limited period of the election cycle.
Macroeconomic Overview: Strong Eurozone Fundamentals
Goldman Sachs emphasized the strength of the euro area’s current macroeconomic backdrop and monetary policy conditions. These remain more influential than political storylines in the long-term valuation of the euro:
– The European Central Bank has begun its interest rate easing cycle but remains cautious and data-driven.
– Economic indicators in the euro area, such as consumer confidence and industrial production, have shown signs of stabilization and even moderate improvement after a slowdown in late 2023.
– The inflation picture in the eurozone continues on a predictable downward trajectory, enabling the ECB to maintain its soft-landing goals without resorting to aggressive tightening.
– Labor markets across much of Europe remain resilient despite external shocks.
As a result, the strength of euro area fundamentals presents a supportive backdrop for the euro, especially in terms of bilateral exchange rates with the U.S. dollar.
U.S. Monetary Policy Still Seen as Key Driver
Goldman Sachs’ base case continues to view Fed rate policy as the primary driver in the EUR/USD trajectory. While political events in France
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