Insights 
VT 
The Euro has dipped below 1.1700 against the US Dollar, nearing monthly lows at 1.1645, largely due to France’s ongoing political and fiscal challenges. The trend continues for the second day, with the pair trading near 1.1665 amid scrutiny on speeches from ECB and Fed officials, including ECB President Christine Lagarde.
Political Uncertainty In France
French Prime Minister Sébastien Lecornu’s unexpected resignation has intensified uncertainty, undermining President Macron’s standing and prompting calls for a snap election. Lagarde mentioned the end of the disinflationary phase, while Vice President Luis de Guindos acknowledged geopolitical risks and weak growth, hinting at possible interest rate adjustments.
Further insights on monetary policy are expected from Lagarde and Bundesbank President Joachim Nagel. Meanwhile, Federal Reserve officials, such as Michelle Bowman and Stephen Miran, might influence the US Dollar’s course. The Euro faces pressure from France’s political impasse and fiscal struggles, which could lead to credit downgrades if unresolved, compounding its near-term difficulties.
German Factory Orders fell by 0.8% in August, disappointing expectations of a 1.4% rise following a previous 2.7% decline. ECB officials, including Joachim Nagel and Christine Lagarde, are expected to discuss monetary strategies. The EUR/USD pair faces bearish momentum as it nears key support levels, with technical indicators suggesting further depreciation risks.
The political turmoil in France is giving us a clear signal for the Euro’s direction in the coming weeks. With the government in chaos, the Euro is likely to remain weak against the US Dollar. The spread between French and German 10-year bonds has already widened to over 85 basis points, a level of stress we haven’t seen since the sovereign debt concerns of the early 2020s.
Economic Weakness And Market Reactions
This political uncertainty is happening alongside signs of economic weakness, as seen with the disappointing German factory orders. In contrast, the US economy appears more resilient, which continues to support the Dollar. We are seeing Fed funds futures pricing in less than a 10% chance of a rate cut before the end of the first quarter of 2026, while swaps markets in Europe suggest a 40% probability of an ECB cut in that same period.
Given this backdrop, we should consider strategies that benefit from a falling EUR/USD. The path of least resistance appears to be downwards towards the 1.1645 monthly low. A decisive break of that level could open the door to further declines toward the 1.1575 area seen in late August.
The ongoing French political drama suggests volatility will remain elevated. The implied volatility for one-month EUR/USD options has climbed to its highest point in over a year, making put options an attractive way to position for a continued slide while defining risk. For those unsure of the immediate outcome, straddles could capture a large move in either direction once there is more clarity from Paris.
We have seen this playbook before, particularly during the run-up to the French elections back in 2017 when political risk weighed heavily on the single currency. However, the current crisis is compounded by France’s precarious fiscal situation, which rating agencies are watching closely. This is not just political noise; it has real credit-risk implications for the entire Eurozone.
In the immediate term, all eyes are on the speeches from ECB and Fed officials later today. Any dovish tone from Lagarde could accelerate the Euro’s decline, while hawkish comments from Bowman would only add fuel to the Dollar’s strength. These events will be key triggers for our positions in the coming days.
