France's Debt Woes Spark Euro Sell-Off as Fed Signals More Rate Hikes
The EUR/USD pair is experiencing a downward trend due to rising political risks in France and the potential for another round of quantitative easing by the ECB. The yield spread between French and German government bonds has widened, indicating increased perceived risk, which weighs on the euro.
France's public debt stands at 118% of GDP and could reach 120% by 2027, with interest payments expected to increase from €66 billion today to €124 billion by the end of the decade. The current political deadlock may trigger capital outflows and push borrowing costs higher.
The ECB may be forced to do 'whatever it takes' to preserve financial stability in the euro area, which could include purchasing French government bonds to bring down their yields. This would amount to quantitative easing, pushing the EUR/USD pair even lower.