Ella 
EUR/GBP struggled to extend gains above short-term resistance at 0.8450 in early European trading on Tuesday. The unexpected upper hand of Jean-Luc Melenchon’s Left, also known as the “New Popular Front,” with Emmanuel Macron’s centrist coalition and Marine Le Pen’s far-right National Rally in second place appears to have limited the pair’s upside.
Market participants expect the Center League to join forces with the Left to form a coalition government and to hold important negotiations on the allocation of new ministers. Concerns about the widening of France’s debt crisis eased as the far-right failed to secure an outright majority, while it was expected to support expansionary fiscal measures.
On the monetary policy front, the debate is heating up over whether the European Central Bank (ECB) will cut interest rates later. ECB officials are scheduled to meet on July 18. “I don’t see a case for another rate cut in July,” ECB policymaker and Dutch central bank president Klaas Knot said in an interview with German newspaper Handelsblatt on Monday. However, he said he was satisfied that the market expected more rate cuts this year and was open to a meeting in September.
In the UK region, uncertainty has deepened over the Bank of England (BoE) rate cuts from the August meeting. On Monday, BoE policymaker Jonathan Haskel supported keeping interest rates unchanged for a long time because price pressures in the labor market remain firm. Wage growth in the UK is clearly above the level needed to reduce service inflation.
Meanwhile, the broad appeal of the pound against the euro remains strong as Keir Starmer’s Labour Party’s overwhelming victory over Rishi Sunak’s Conservative Party in the UK parliamentary elections has brought political stability to the economy. This is positive for economic and financial markets.
