Euro softens below 1.1250 on France’s fiscal risk

The euro slipped below 1.1250 against the US dollar on Monday due to concerns over France's fiscal situation. French Prime Minister Sébastien Lecornu's minority government presented a controversial €54 billion budget for 2027 to prevent a downgrade or default. However, analysts are skeptical the government would pass the budget without concessions.

France's public debt now stands at 119% of GDP, and government bonds have seen selling pressure due to rising policy rates and political risks. French 10-year yields hit their highest since 2002 last week. The US Federal Reserve is expected to keep interest rates unchanged at their October meeting after weaker US jobs data was released.

Analysts at Standard Chartered believe underlying price pressures are contained, with core inflation only modestly increasing since late February. The Federal Reserve's speech tracker score for Fed Governor Jerome Powell stood at 9.2/10, indicating a stronger desire for tighter policy. The FXS Fed Sentiment Index reached 136.59, signaling a more hawkish tone from the Fed, which could support the dollar against the euro.

Technical analysis shows EUR/USD has broken below its 100-day simple moving average and is approaching key resistance levels at 1.1440, 1.1510, and 1.1685.