Ella 
EUR/USD continued its rally, trading around 1.0790 in Asian session on Thursday. The rise in the exchange rate can be attributed to the decline in the US dollar (USD) due to escalating speculation of a rate cut by the Federal Reserve (Fed) in 2024. The US market will be closed on Thursday for the Independence Day holiday.
The US dollar index (DXY), which measures the US dollar against six other major currencies, faces challenges against the backdrop of falling US Treasury yields. At press time, the US dollar index is trading around 105.30. As of Wednesday’s close, the US 2-year and 10-year Treasury yields were 4.70% and 4.35%, respectively.
In terms of US data, the US ISM Services Purchasing Managers Index fell sharply to 48.8 in June, the biggest drop since April 2020. This reading was well below the market’s expectation of 52.5 and compared to 53.8 in May. The ADP employment report showed that US private enterprises added 150,000 employees in June, the smallest increase in 5 months. The figure was lower than the expected 160,000 and lower than the downwardly revised 157,000 in May.
On the euro side, traders expect volatility in the euro to increase as the second round of the French election on July 7 approaches. According to a poll conducted by Harris Interactive for Challenge magazine, the far-right National Rally (RN) is expected to fall short of the 289 seats needed to control the 577-seat National Assembly, Reuters reported, which is the first survey report published after the anti-far-right National Rally was established.
The yield spread between French and German 10-year government bonds has narrowed to about 71 basis points from a recent peak of 82 basis points at the end of last month. The decline in the risk premium of French government bonds shows that investors are becoming more confident that the far-right National Rally will not win a parliamentary majority.
