Euro stages a 'simple technical rebound' as French 'fiscal jitters' ease

Matthew Ryan, CFA Ebury

The Euro ended London trading on Tuesday closer to 1.13 than 1.12 as fiscal jitters in France eased, though it has since given back these gains. Marine Le Pen, the favourite for the 2027 presidential election, pledged on Tuesday to deepen spending cuts should National Rally come to power, targeting €140 billion in net savings by 2032 relative to 2026, up from the €125 billion originally planned.

While we think these cuts would be bullish for French bonds, by lowering the fiscal risk premium, and for the euro, by reducing the risk of Euro Area contagion, we see Tuesday's rally as more a byproduct of a simple technical rebound after the sharp sell-off.

Yet with nothing resolved, the 2027 budget still to clear a divided parliament and the election still months away, we expect the French political risk premium to remain elevated, which could act to cap any relief rally in the euro.

There’s no economic data out of the bloc this week, but a handful of ECB officials will be speaking in the coming days - expect any remarks on the state of the bond market to be particularly close scrutinised by market participants.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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