The euro lingered near two-year lows on Thursday as France’s government collapse spurred fears about the stability of the eurozone’s second-largest economy. Meanwhile, the South Korean won steadied after enduring a political shock triggered by a martial law controversy. These developments highlight mounting global economic and political uncertainties as markets brace for further turbulence.
In early Asian trading hours, the euro traded at $1.0514, moving in a narrow range but uncomfortably close to the two-year low of $1.03315 touched in late November. The currency’s struggles reflect deepening concerns over the fallout from France’s political upheaval.
On Wednesday, French lawmakers passed a no-confidence vote against the government, a widely expected outcome that has plunged the nation into uncertainty. This political crisis threatens to undermine efforts to address France’s ballooning budget deficit and enact critical reforms.
“The fall of the government means that political uncertainty will persist and continue to weigh on business and consumer confidence,” said Charlotte de Montpellier, an economist at ING. “Finding a new prime minister who will not face a motion of no confidence directly will be a very difficult mission. It is therefore likely that France will remain without a government for several weeks, if not months.”
Adding to the unease, European Central Bank (ECB) President Christine Lagarde refrained from offering reassurances regarding potential ECB intervention to stabilize markets. Lagarde underscored financial stability’s importance to price stability but did not indicate immediate action.
In a parliamentary hearing, Lagarde also signaled a bleak outlook for eurozone growth, stating that the region faces downside risks in the medium term. Traders are now factoring in a high probability of rate cuts, with markets pricing in 157 basis points of easing by the end of 2025.
The South Korean won found some stability, trading at 1,414.41 per dollar, following the government’s announcement of a 40 trillion won ($28.35 billion) market stabilization fund. This move comes in the wake of political unrest sparked by President Yoon Suk Yeol’s controversial declaration of martial law, which was quickly rescinded.
The martial law debacle has led to calls for President Yoon’s impeachment, further shaking investor confidence. The won remains one of the worst-performing Asian currencies in 2024, hovering near its two-year low.
Despite the chaos, the South Korean finance ministry’s intervention has managed to calm markets somewhat, though uncertainties linger. The won’s weak performance underscores broader regional vulnerabilities as geopolitical and economic pressures mount.
Bitcoin continued its meteoric rise, climbing 1% in Asian hours to $98,754 and edging closer to the symbolic $100,000 mark. The cryptocurrency has been on a remarkable rally since November, fueled by optimism surrounding Donald Trump’s U.S. election victory. Market participants anticipate that Trump’s administration will adopt a favorable regulatory stance toward digital assets.
If Bitcoin breaches $100,000, it would mark a historic milestone for the world’s largest cryptocurrency, further solidifying its role as a major asset class. Analysts caution, however, that the volatile nature of cryptocurrencies warrants vigilance despite the current euphoria.
Across the Atlantic, the U.S. dollar index held steady at 106.31, reflecting cautious sentiment among traders. Investors are looking ahead to Friday’s non-farm payrolls report, which is expected to show a rebound in job growth with an increase of 200,000 jobs in November. This follows October’s disappointing gain of just 12,000 jobs, the weakest since December 2020.
Federal Reserve Chair Jerome Powell struck a measured tone on Wednesday, suggesting that while the U.S. economy is performing better than anticipated, the pace of interest rate cuts may slow. Markets are currently pricing in a 74% chance of a 25-basis-point rate cut at the next Federal Reserve meeting, up from 67% a week ago, according to the CME FedWatch tool.
Asian currencies displayed mixed trends. The Japanese yen strengthened slightly to 150.345 per dollar amid speculation about a potential rate hike by the Bank of Japan later this month. Markets are pricing in a 60% chance of a December rate hike as the central bank seeks to curb inflationary pressures.
Meanwhile, the Australian dollar was flat at $0.64241, following a 0.9% drop in the previous session due to disappointing economic data. Sterling also held steady at $1.27, reflecting broader market caution.
The eurozone’s challenges, compounded by France’s political instability, present a significant hurdle for the region’s economic recovery. With the ECB already facing pressure to cut rates, prolonged political deadlock in France could exacerbate market volatility and weaken the bloc’s overall resilience.
In Asia, South Korea’s efforts to stabilize its currency may provide temporary relief, but the longer-term impacts of political turmoil could weigh on the economy. The martial law controversy has also highlighted the fragility of emerging markets in navigating political and economic shocks.
The U.S. remains a key focus for investors, with labor market data and Fed policy likely to dictate global risk sentiment in the coming weeks. As inflation concerns persist, the interplay between economic indicators and central bank decisions will remain pivotal.
