Euro steady as France’s government collapses

The euro has been drifting most of this week and remains steady on Thursday. In the European session, EUR/USD is trading at 1.0533, up 0.22% at the time of writing.

France in political chaos as government collapses

France’s coalition government has collapsed after a no-confidence vote against the government passed on Wednesday. French Prime Minister Michel Barnier is expected to resign on Thursday. The political turmoil could leave France without a government for weeks or even months, and the instability in the eurozone’s second-largest economy could spell trouble for the entire bloc.

The euro has weathered this later storm and has managed to post slight gains on Thursday. That could change if France’s political crisis deepens. The euro has been on a dreadful slide and is down 7.2% against the US dollar since October 1.

The European Central Bank meets on Dec. 12 and is widely expected to cut rates by 25 basis points. The political crisis in France is one more headache for ECB policymakers. Germany’s government collapsed last month and the new Trump administration could slap tariffs on the European Union. If this wasn’t enough, the eurozone economy has been sluggish, with the November data indicating that services and manufacturing contracted.

Federal Reserve Chair Jerome Powell sounded guardedly optimistic on Wednesday, saying that the US economy was in “very good shape” and that the Fed could “afford to be a little more cautious” about rate moves. The markets have priced in a rate cut at the Dec. 18 meeting and Powell may be trying to dampen anticipation of further rate cuts in early 2025. Powell may decide to cut in December and take a breather for a few months, with President-elect Trump and the new Congress taking over in January and likely to pursue a protectionist trade policy.

EUR/USD technical

• EUR/USD is testing resistance at 1.0646. Above, there is resistance at 1.0581

• 1.0509 and 1.0474 are the next support levels.