EUR/USD experienced an increase, mainly attributed to US Dollar weakness. This followed market expectations that French PM Lecornu would withstand no-confidence motions. Political stability in France came at the cost of budgetary challenges, affecting pension reform. This led to the 10-year OAT-Bund spread remaining over 75 basis points, impacting the Euro. Despite this, the Euro priced out a significant portion of the French risk premium.

Market Drivers And Speculations

With the likelihood of no government collapse before year-end, EUR/USD may shift focus to traditional market drivers such as rates and equities. The US Dollar remains vulnerable, and reaching above 1.750 is possible, with 1.180 expected to be within reach. The upcoming Trump-Putin meeting could also generate speculation on a Ukraine ceasefire, affecting the Euro.

In the Netherlands, upcoming elections are not seen as a major risk for the Euro. A fragmented parliament is anticipated, with most parties avoiding collaboration with Geert Wilders’ PVV party, despite its lead in the polls. This scenario suggests likely political stability without drastic Euro impacts.

The recent rise in EUR/USD appears driven more by a soft dollar than by genuine euro strength. We’ve seen US CPI data for September 2025 come in at a mild 2.5%, reinforcing market expectations for another Federal Reserve rate cut before year-end. This has kept downward pressure on the US dollar across the board.

We note the 10-year OAT-Bund spread is holding stubbornly around 80 basis points, reflecting ongoing concerns about France’s fiscal path after the pension reform freeze. This sustained risk premium suggests that any long euro positions carry underlying political fragility. Options traders might consider buying cheap, out-of-the-money EUR puts as a hedge against a sudden reversal.

Policy Divergence

With much of the French political risk now priced in, the primary driver is the clear policy divergence between the ECB and the Fed. Eurozone inflation has remained stickier, hovering just over 3% in the latest print, prompting the ECB to signal rates will stay higher for longer. This contrasts sharply with the dovish tilt we’re seeing from the Federal Reserve.

Given the fragile state of the dollar, a break above the recent 1.1750 resistance level seems increasingly likely, putting the 1.1800 psychological level in play. Looking at the options market, one-month implied volatility has fallen to just 5.5%, making strategies like bull call spreads an efficient way to position for this targeted move. This structure allows traders to capitalize on the upside while defining their maximum risk.

The upcoming meeting between Presidents Trump and Putin introduces a significant variable that could accelerate the euro’s rise. Any credible speculation about a truce in Ukraine would likely cause a sharp drop in European natural gas futures, which have been a source of volatility since the conflict began in 2022. This would be unequivocally positive for the euro, potentially triggering a rapid move through our 1.1800 target.

Meanwhile, the Dutch election previewed earlier this year seems to be a non-event for the currency as we approach the vote. Polling continues to show a fragmented result is the most probable outcome, preventing the Eurosceptic PVV party from forming a government. This lack of a clear market-moving catalyst keeps the focus on the broader macro picture.

Create your live VT Markets account and start trading now.