Euro Weakens on French Fiscal Risks and Political Uncertainty

The Euro (EUR) has started the week on a weak note, particularly against the Swiss Franc, as investors react to rising fiscal risks in France. The country's finance minister, Roland Lescure, has promised to reduce the budget deficit from 5% of economic output next year to the EU's 3% limit by 2029. However, analysts at BBH express doubt that this plan will pass parliament without major concessions, highlighting the political instability in the country.

The uncertainty has widened the gap between French and German bond yields. French 10-year bond yields have surged by 0.65% to near 4.89%, while German 10-year Bund yields have dropped by 1.26% to around 3.41%. The weakening Euro could boost export competitiveness but also increase the cost of imported goods, adding to the challenges faced by the European Central Bank (ECB) in managing inflation.

Investors are now focusing on ECB Chief Economist Philip Lane’s speech scheduled for 08:00 GMT. Additionally, the Swiss Franc has gained safe-haven appeal amid the heightened French risks. This week, the Swiss Unemployment Rate data for September, to be released on Tuesday, will also be closely watched.