Euro slips below 1.1250 as French unrest and fiscal risk weigh
EUR/USD fell to around 1.1225 in early Wednesday trading as protests and fiscal strain in France kept investors cautious on the euro ahead of speeches from several European Central Bank officials.
French Prime Minister Sébastien Lecornu said curfews could be reinstated “where the situation requires it,” and authorities are preparing to deploy some military personnel to help manage a fresh round of protests expected over the weekend. The political backdrop has added to existing concerns about France’s public finances.
Tommy von Brömsen, FX strategist at Handelsbanken, said the unease over France was unlikely to fade soon and that further euro weakness could still be priced in by markets.
Strain in French government bonds is also weighing on sentiment: Scotiabank strategists noted the gap between 10-year French OAT and German Bund yields remains elevated near 150 basis points, a sign of the risk premium investors are attaching to French debt over social and fiscal tensions. They said the euro has lagged other major currencies as a result.
In Germany, the October ZEW survey showed its current conditions gauge improving to -35.9 from -47.1 in September, beating the -44.5 expected, while the expectations component softened to 28.1 from 33. Scotiabank said the data points to an economy still in a slow recovery rather than a strong rebound.
On the US side, traders are pricing in roughly a 16.1% chance of another quarter-point rate increase at the Federal Reserve’s October 27-28 meeting, and more than 90% odds of a hike in December, according to the CME FedWatch tool. Fed Chairman Kevin Warsh said he would not prejudge upcoming meetings, even as he pointed to structural growth and an investment boost from artificial intelligence.
ECB President Christine Lagarde and fellow policymakers Philip Lane, Joachim Nagel and Piero Cipollone are scheduled to speak later Wednesday, with markets watching for signals on the policy outlook.
Why it matters: Political and fiscal tension in France keeps a risk premium on French bonds and pressures the euro against the dollar, while shifting Fed rate-hike expectations continue to shape the broader direction of EUR/USD.
Source: FXStreet