Euro weakens below 1.1250 on France debt concerns
- EUR/USD edges lower to near 1.1220 in Tuesday’s early Asian session.
- Concerns about France's ability to tame its budget deficit weigh on the Euro.
- Traders reduce their bets on a Fed rate hike this month following soft US jobs data.
The EUR/USD pair declined to around 1.1220 during the early Asian trading hours on Tuesday. The Euro (EUR) weakens near a 17-month low against the US Dollar (USD amid growing concern over France’s debt position.
French Prime Minister Sébastien Lecornu's minority government announced plans last month for a €54bn savings drive to stave off a catastrophic downgrade or sovereign default. Lecornu said the savings would result in limiting a budget deficit of 5.5% of GDP this year to 5% next year. He warned that without action the shortfall between public spending and revenue could reach 6.5%.
Concerns over France’s rising debt costs as the government battles to control its stretched public finances in the run-up to next year’s presidential election. This, in turn, exerts some selling pressure on the shared currency.
Furthermore, the political turmoil in Spain might contribute to the EUR’s downside. Spanish Prime Minister Pedro Sanchez called a snap election for November 29 in an effort to increase his parliamentary support after lawmakers last week rejected proposals to address a housing crisis that has drawn nationwide protests.
“Europe is taking the spotlight at the start of the week, as fiscal and political concerns hit the bloc,” said Kathleen Brooks, the research director at XTB. “France is the epicentre of the concerns; however, Spain is also set to get ready for an early election, which is adding to investor worries,” Kathleen added.
Reduced expectations of a Federal Reserve (Fed) rate hike this month could weigh on the Greenback and act as a tailwind for the major pair. The US Nonfarm Payrolls (NFP) rose by 29K in September, compared to the 133K increase seen in August, the US Bureau of Labor Statistics (BLS) revealed on Friday. This figure came in below the market consensus of 90K. The Unemployment Rate climbed to 4.2% in September from 4.1% in August.
Markets are now pricing in nearly 22.7% odds that the US central bank will lift benchmark borrowing costs at its October policy meeting, according to the CME FedWatch tool.
Euro pressured as ECB backstop complicated by France fiscal strains
Strategists at Brown Brothers Harriman note that the ECB’s Transmission Protection Instrument, designed to provide “a backstop against disorderly spread widening,” is not an automatic shield for Eurozone debt markets. They stress that activation is contingent on EU member states pursuing “sound and sustainable fiscal and macroeconomic policies,” a condition that France’s deteriorating finances increasingly struggle to meet. BBH argues that this complicates the case for intervention, even as the risk of broader contagion across Eurozone bond markets would “increase pressure on the ECB to act.”
At the same time, BBH highlights comments from ECB Chief Economist Philip Lane, who recently underscored that the “increase in long-term interest rates constitutes a material tightening of financial conditions for the euro area.” In their view, that combination leaves the Euro facing sustained downside pressure, as investors weigh rising fiscal risk against the prospect of a “potentially shallower ECB hiking cycle.”
Nagel flags upside inflation risks but sees limited pass-through so far
ECB’s Nagel delivers a stronger-than-usual hawkish signal, with a 7.2/10 FXS Speechtracker score versus a 6.6/10 historic average, as upward risks are said to dominate the inflation outlook. The emphasis on uncertainty “calling for flexibility, not inaction” points to a reluctance to ease policy prematurely, which is mildly supportive for the Euro on the margin.
At the same time, Nagel notes there are “no clear signs” that inflation has fed through to price and wage setting, tempering the hawkish tilt and suggesting patience rather than aggressive tightening. Overall, the speech leans hawkish relative to Nagel’s baseline, but the lack of strong wage-price dynamics keeps the door open for data-dependent adjustments rather than a clear push toward further immediate rate hikes.
Technical Analysis: EUR/USD retains a negative tone amid oversold conditions
In the daily chart, EUR/USD keeps a clear bearish tone as it holds beneath the Bollinger Bands’ 20‑day simple moving average and the 100‑day moving average. Price is pressed toward the lower Bollinger band, while the Relative Strength Index (14) around 19 stays deeply oversold, suggesting persistent selling pressure but also raising the risk of a corrective bounce from nearby support.
On the topside, initial resistance emerges at the Bollinger Bands’ midline around 1.1420, followed by the 100‑day moving average at 1.1505 and then the upper Bollinger band near 1.1670, which together define a broad cap on recovery attempts. On the downside, immediate support is aligned with the lower Bollinger band at 1.1170, and a sustained break below this floor would likely expose the pair to a fresh leg lower in the short term.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.