Euro Strengthens Slightly, but French Political Crisis Remains a Threat!

The euro edged slightly higher against the US dollar during Thursday morning’s trading (October 22, 2026), even as political uncertainty and deteriorating fiscal conditions in France continue to loom over the market. The EUR/USD pair traded around 1.1235 during the early Asian session, holding its position above the psychological 1.1200 level. This gain remains limited, however, as investors closely monitor a wave of anti-government protests in France, rising sovereign borrowing costs, and the Federal Reserve’s interest rate policy trajectory ahead of next week’s meeting.

Pressure on the euro intensified after the yield on 10-year French government bonds breached 5% during Wednesday’s trading—the first time in 24 years—before settling back to around 4.99%. This spike in borrowing costs reflects investor concerns regarding the worsening state of government finances and a deadlock in national budget negotiations. French President Emmanuel Macron has pledged to prevent a recurrence of riots and looting, while the "Yellow Vest" movement plans to stage large-scale demonstrations in Paris this coming Saturday. John Hardy, Head of Global Macro Strategy at Saxo, noted that France requires more substantive fiscal adjustments to rein in debt levels and restore market confidence.

Meanwhile, the movement of the EUR/USD pair is also influenced by expectations surrounding US monetary policy. According to the CME FedWatch Tool—cited in market reports—investors see a relatively low probability of a Federal Reserve interest rate hike at the October 27–28 meeting, with further tightening more widely anticipated for December. The prospect of the US central bank maintaining current interest rates could provide some room for the euro to stabilize, though political risks in France continue to cap any potential gains. Investors are also awaiting statements from European Central Bank (ECB) official Fabio Panetta, as well as developments in economic data and monetary policy, to gain clues regarding the future direction of the European currency.