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Euro falls as French exit polls indicate hung parliament

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The euro fell on Sunday following exit polls from the final round of the French parliamentary elections, which indicated a hung parliament.

The left-wing New Popular Front grouping unexpectedly emerged as the likely winner of the most seats.

Europe’s single currency was down 0.3% at $1.08, with volumes remaining thin as early trading began in Asia. It also dipped against the British pound and the Japanese 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.”

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Analysts expect a period of volatility and uncertainty as investors assess the final composition of the parliament and the extent to which the leftist alliance can implement its policies.

The New Popular Front alliance has proposed measures such as a 10% civil servant pay hike, free school lunches, supplies and transport, and a 10% increase in housing subsidies.

The euro had climbed last week as polls suggested a hung parliament was likely, easing fears of a far-right victory. This followed a sharp drop in the euro, along with stocks and bonds, when President 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.

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