Euro Weakens on France Fiscal Risks and Fed Rate Hike Speculation
The Euro (EUR) weakened below 1.1250 against the US Dollar (USD) during early Asian trading on Monday, driven by concerns over France's fiscal stability. The French government, led by Prime Minister Sébastien Lecornu, presented a contentious €54 billion austerity budget for 2027 to avoid a potential downgrade or default. However, analysts doubt the minority government can pass the budget without significant concessions. France's public debt has surged to 119% of GDP, causing selling pressure on government bonds and pushing 10-year yields to their highest levels since 2002.
Meanwhile, traders reduced bets on a US Federal Reserve (Fed) interest rate hike in October following weaker jobs data, with the probability now at 77.9%. Across the Atlantic, the European Central Bank (ECB) appears cautious about rate hikes, with Standard Chartered analysts noting contained underlying price pressures and ECB President Christine Lagarde highlighting downside risks to growth and inflation.
Fed Governor Christopher Logan's hawkish remarks boosted expectations of further rate increases, reinforcing the Dollar's strength. The FXS Fed Sentiment Index rose to 136.59, indicating a more hawkish stance. Logan emphasized the need for higher rates to restore price stability, underscoring a clear bias toward tightening.
Technically, EUR/USD remains bearish, trading below the 100-day simple moving average and Bollinger Bands' middle line. While the Relative Strength Index (14) is in oversold territory at 20.2, the pair faces resistance at 1.1440 and 1.1510, with support at 1.1200.