The EUR/USD pair declined to around 1.1245 during the early Asian session on Monday, as the Euro came under pressure due to mounting concerns over France's fiscal outlook [1]. The French government, led by Prime Minister Sébastien Lecornu's minority administration, introduced a controversial €54 billion draft budget for 2027 aimed at averting a potential sovereign downgrade or default. However, analysts expressed skepticism about the government's ability to pass the budget through Parliament without making significant concessions [1].
According to a report from the Associated Press, France's public debt has reached 119% of GDP, intensifying worries among investors. This has led to selling pressure on French government bonds, with 10-year yields climbing to their highest levels since 2002 last week, reflecting heightened political and fiscal risks as well as expectations of rising policy rates [1].
In the United States, traders have reduced expectations for a Federal Reserve rate hike at the upcoming October policy meeting, following weaker US jobs data. The probability of rates remaining unchanged now stands at nearly 77.9%, up from 74% prior to the data release [1]. Meanwhile, Standard Chartered analysts noted that Eurozone core inflation has only modestly increased, from 2.2% in January to 2.5% year-on-year in September. They highlighted that ECB President Lagarde has emphasized downside risks to both growth and inflation due to higher yields, suggesting the ECB is likely to wait for new macroeconomic projections in December before considering further rate changes [1].
On the US monetary policy front, Fed official Logan delivered a notably hawkish speech, scoring 9.2/10 on the FXS Speechtracker, well above the historical average. Logan indicated that the policy rate must rise by at least 50 basis points, with the possibility of several additional hikes, to restore price stability. This stance supports upside risks for the US Dollar and front-end yields, as Logan argued that current policy is not yet restrictive enough and pointed to a strengthening economic expansion and balanced labor market [1].
CONCLUSION
The Euro's decline below 1.1250 reflects investor anxiety over France's fiscal trajectory and surging bond yields, while the US Dollar is buoyed by hawkish Fed commentary and reduced expectations for an imminent rate hike. Market participants are closely watching upcoming policy meetings, with the ECB likely to wait until December for new projections and the Fed signaling further tightening ahead.