By Samuel Indyk

LONDON (Reuters – Monday’s euro rally was driven by European Central Bank tools that fight currency fragmentation. Markets are now focusing on France, which President Emmanuel Macron has lost to an absolute majority.

Final results revealed that Macron’s Ensemble alliance won the largest number of seats in the National Assembly, but not enough to secure the absolute majority required for control over parliament.

Analysts, traders and other market participants tended to ignore the results of the elections and instead focus on the ECB’s attempts at reducing borrowing costs in the south bloc and its outlook regarding monetary policy.

Ingvild Borgen, an FX analyst with DNB Markets, stated that even though Macron’s presidency and majority in Parliament would have a positive effect on euro area cooperation, etc., but it is more long-term, and not something that will affect markets now.

“The euro has two important things: what kind of anti-fragmentation instrument the ECB is able to come up and how it will impact monetary policies.”

Christine Lagarde, President of the ECB, reiterated Monday her plans to increase the ECB’s interest rates two times this summer and fight widening spreads between the borrowing costs for different countries in the euro area.

Last week, the euro rose 0.4% to $1.05365 against the dollar.

After hitting 135.44 in Asia Pacific trading hours on Wednesday, the dollar was unchanged at 135.03 Japanese yen. This is close to Wednesday’s high of 135.60 which marks its highest level since Oct 1998.

While the compared the greenback with a basket made up of six currencies (including the euro and the yen), fell 0.4%, it remained within a few hundredth of the two-decade mark of 105.79. This was achieved on Wednesday by the Federal Reserve raising interest rates by $75 basis points to combat high inflation.

Jerome Powell, Fed Chair will give evidence before the Senate on Wednesday and the House Thursday of this week.

As the U.S. Stock and Bond markets were closed on Monday for the Juneteenth Public Holiday, traders are likely to trade light throughout Monday.

After volatile trading last Wednesday, risk-sensitive currencies such the Australian and New Zealand Dollars rose by 0.5% and 0.4% respectively.

Dollar fell 0.3% at 0.96685 Swiss Swiss francs while Sterling rose 0.3% at $1.2256.

The leading cryptocurrency bitcoin gained 1.6% to $20.882 after hitting a weekend low of $17592.78, which was a record since late 2020.