Euro: French fiscal risks limit recovery against US Dollar – ING

Chris Turner at ING highlights that EUR/USD is finding some support even as French bond spreads widen, with markets focused on France’s 2027 budget process and a looming Moody’s review. Despite French fiscal stress and high energy prices, Eurozone business optimism has held up. ING sees consolidation after September’s drop, but judges the case for a sustained EUR/USD recovery as weak.

French spreads limit Euro upside

"EUR/USD is finding a little support even as French debt spreads widen. The French news should remain euro-bearish, as today the lower house votes on the revenue side of the proposed 2027 budget. Both the left and the right have attached numerous amendments to the original bill, meaning that even if it passes, markets are unlikely to welcome it."

"And the budget bill bouncing between the lower and upper houses into early December seems to be the base case. This week French sovereign debt also has to cope with a Moody's rating review on Friday. Here Moody's could play catch-up with the other agencies in cutting France to a single A-rated issuer."

"The move is expected; investors are underweight French debt, but there is still little concern that the loss of the final AA rating from the big three agencies could lead to some forced selling."

"Expect EUR/USD to remain on 'OAT-watch' today. While a period of consolidation/correction looks necessary after a big fall in September, the case for a EUR/USD recovery remains weak. A move to 1.1180 looks as likely as a rally to 1.1270."

"Despite French budget stress and high energy prices, eurozone business optimism has been holding up surprisingly well. That will be tested today with the release of the German ZEW index and on Friday with the flash PMIs across the region. These are all expected to edge a little lower, but probably not enough to dent the euro."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)