LONDON—The euro stabilized during holiday-thinned European trading Monday after suffering steep declines in Asian hours, sparked by the rejection of further German-led austerity measures in French and Greek elections.
The common currency was able to climb off its overnight low against the dollar of $1.2955, its weakest since late January, but has appeared to settle in a slightly lower trading range around the $1.30 level as market pressure has abated and London remains shut for a public holiday.
Markets have been unnerved by the election of pro-growth Socialist François Hollande as France's next president and the failure of Greece's two main political parties to muster the necessary support to form a coalition government, based on 99% of the vote counted. Pro-bailout parties secured just 33% of the public vote, down from 77% at the last election three years ago.
European bourses were in the red, led lower by French banks and Greek equities while prices of riskier euro-zone peripheral states' bonds rose following the Greek election. Economists at Citigroup C -2.78% said the probability of Greece leaving the euro was now as high as 75%.
But currency markets remained relatively calm during European trading hours, waiting to see whether the weekend's political developments would derail euro-zone budget consolidation and the distribution of further bailout money to Greece.
"When European trade started we did not see further pressure [on the euro]. I would not expect a further selloff when London gets back tomorrow," said Lutz Karpowitz, senior currency strategist at Commerzbank AG in Frankfurt. Investors had already predicted these election results, limiting the scope for further euro falls, he said.
Still, both the French and Greek elections highlight growing public discontent with austerity measures and a greater focus on pro-growth policies.
"The results thus add to the uncertainty surrounding the path to fiscal recovery, even if it can be argued that anything that brings about less negative growth outcomes in the euro zone may ultimately be positive," said Robert Ryan, currency strategist at BNP Paribas BNP.FR +1.54% .
Consequently, expectations are that the euro will remain under pressure, with Nomura chief G-10 currency strategist Jens Nordvig anticipating a $1.26-$1.28 range against the dollar over the next few weeks.
Adding to euro bears' ammunition, Spain provided further evidence of economic stress, with industrial output falling by an annual rate of 7.5% in March.
But robust German manufacturing orders for March and comments from a German government spokesman that the new relationship between German chancellor Angela Merkel and Mr. Hollande would succeed underpinned the euro, which traded as high as $1.3037.
Emerging-market currencies also initially suffered steep declines as the weekend election results in France and Greece heightened uncertainties. The South Korean won slipped 0.63% against the dollar during Asian trade, its largest single-day drop in a month.
In the session ahead, the focus is likely to remain on the fallout from the weekend's elections because there is little scheduled apart from U.S. April employment trends index at 2 p.m. GMT and March consumer credit data at 7 p.m. GMT.
In the European morning, the euro was trading at $1.3033 against the dollar, compared with $1.3083 late Friday in New York, according to trading system EBS. The dollar was at ¥79.82 against the yen, compared with ¥79.89, while the euro was at ¥104.05 compared with ¥104.47. Meanwhile, the pound was trading at $1.6169 against the dollar, compared with $1.6154 late Friday in New York.
