The euro lagged its major peers on Wednesday, down 0.13% at about 177.45 versus the Japanese yen in European trade, as French political strains fed into broader euro area pricing. French debt worries were reflected in wider peripherals: the Italian 10-year spread over Bunds rose 4.7bps to 111bps, while Spain’s increased 1.2bps to 62bps. Risk assets softened too, with the STOXX Banks index down 2.07% to a four-month low and French lenders sliding further, including Société Générale (-3.41%), Crédit Agricole (-2.64%) and BNP Paribas (-2.48%); the euro also fell 0.23% against the dollar to $1.1213.
European Fixed Income and Central Bank Policy
In rates, 10-year yields moved higher in France (+13bps), Italy (+8bps) and Germany (+3bps), and French 10-year borrowing costs were described as about half a rate hike above Friday’s level. Markets are positioned for the European Central Bank to keep policy settings unchanged at its 29 October meeting, with the deposit rate seen at 2.50%.
Japanese Yen and Bank of Japan Outlook
The yen firmed against most peers, while a speech score of 7/10 versus a 7.4/10 baseline accompanied guidance pointing to underlying inflation near 2% and a continued, gradual shift in Bank of Japan policy without changes to its bond taper approach.
