Euro attracts some sellers to near 1.1200 on French political turmoil, fiscal risks

The EUR/USD currency pair experienced a brief dip near 1.1215 during early Asian trading hours on Monday. The euro weakened against the US dollar due to rising fiscal risks in France, following a surge in the spread between French and German 10-year government bonds. This spread reached its highest level since the 2011 Eurozone debt crisis, indicating heightened investor concerns.

Protests in various French cities turned violent, with clashes between police and demonstrators causing widespread street violence and property damage. French President Emmanuel Macron called for order to be restored following the unrest. ECB President Christine Lagarde urged France to address its structural issues through domestic fiscal policy.

In addition, Spain is set to hold snap general elections on November 29, adding to political instability across the Eurozone. The Federal Reserve's stance on interest rates remains uncertain, with Chair Kevin Warsh offering no clues about future decisions. Markets now estimate an 83.9% chance of the Fed keeping rates unchanged later in the month, up from 49% a month earlier.

Analysts at Nordea expect two further 25 basis point rate hikes from the ECB, one in December and another in March 2027, bringing the deposit rate to 3%. Nordea maintains a constructive view on the ECB's tightening path, believing that the policy backdrop and data flow will support another hike in December if price pressures persist.