Le Pen's alternative budget is said to be worth watching. File image. Source: Global Panorama, Flickr. Licensing: Creative Commons 2.0.
The euro could fall to $1.10 if French bond stress intensifies and ECB rate expectations keep unwinding.
The euro-to-dollar exchange rate has scope to test 1.110 and 1.100 as French bond market turbulence erodes the two supports that carried the currency through the first half of the year, according to ING Bank.
The euro started the week at the bottom of the G10 scorecard, which ING reads as confirmation that French debt remains the market's primary concern.
"The euro is being affected through two channels: a direct one, where a fiscal risk premium (so far not extreme) has been added, and an indirect one via a repricing lower in ECB rate expectations," says Francesco Pesole, FX Strategist at ING Bank.
In midweek trade, we see French bond yields rise from Tuesday's floor, with the ten-year reaching 4.847%. The euro-to-dollar conversion is down 0.60% on the day at 1.1193, reflecting renewed pressures.
Weakness comes as expectations for a rate rise at the March ECB meeting has fallen to 45 basis points from 80bp on 24 September, a repricing that has taken the two-year swap rate differential between the euro and dollar to minus 167bp.
"The last time the spread was at these levels was in August 2025. At that point, EUR/USD was trading around 1.16-1.17, but that reflected a sizeable USD-specific risk premium after Liberation Day and a sharp rise in USD hedging demand," says Pesole.
Strip that premium out and the comparison turns bearish.
"Before Liberation Day, a swap spread at current levels was consistent with EUR/USD closer to 1.08," says Pesole.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Talk to a specialist"We don't have much confidence in a sustained rebound. The fiscal risk premium is still relatively limited, leaving scope for EUR/USD to test 1.110 or even 1.100 if bond market stress intensifies," says Pesole.
EUR/USD: The Premium Has Room to Grow
The argument that the fiscal premium is contained is the one that matters for euro buyers, because a contained premium is one with room to widen.
TD Securities says the market's reaction to French concerns has stayed relatively tame against the last episode of comparable OAT-Bund widening, which leaves scope for near-term euro underperformance.
Marine Le Pen's counter-budget is the next test, with markets awaiting the detail.
The bind for the single currency is that neither outcome in Paris clearly helps it.
A budget that fails raises the fiscal premium directly, while a deterioration severe enough to bring the ECB's support tools into play suppresses the rate expectations the euro has been trading on.
EUR/USD and GBP/EUR: What It Means for Sterling
The pound reached 1.1829 against the euro on Wednesday, its best for sterling-based euro buyers since June 2025, and ING's call points to that advance having further to run.
A euro-to-dollar rate at 1.10 with the pound-to-dollar rate holding its range would put the pound-to-euro rate well into the 1.19s.
The condition attached is that the pound keeps its own house in order, with the 28 October Budget the event capable of removing sterling from the trade.
For now the euro is the weaker leg of both pairs, and Barclays expects French developments to remain the primary driver of the euro-pound cross.
Beneath the market in euro-dollar, 1.1160 is Monday's low and the gateway to ING's targets.
Above it, 1.1289 is the level the euro needs to reclaim to argue the breakdown has failed.
Christine Lagarde speaks on Wednesday, and any acknowledgement that French yields are shaping the policy path would validate the repricing ING has built its forecast on.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Talk to a specialist
