The Euro has come under heavy selling pressure today as concerns grow over France's deteriorating public finances and political outlook.
Investors are demanding significantly higher returns when buying French government bonds with France's 10-year government bond yields pushing close to 5%, which is its highest level since 2002. Worryingly, the gap between French and German yields has widened sharply to levels not seen since the Eurozone debt crisis of 2011-12, which is a sign that confidence in French fiscal credibility is eroding fast. A series of budget measures designed to reduce the deficit have been met with scepticism by markets and any promises made by the current government lack credibility ahead of next April's French presidential elections.
The two leading candidates in the presidential race (far-right Marine Le Pen and far-left Jean-Luc Mélenchon) are not helping the situation as both are seen as unlikely to deliver the kind of fiscal discipline markets want. Le Pen has pledged tax cuts and a reduction in the retirement age, despite an already generous pension system, and neither candidate is seen as willing to make the painful spending cuts needed to put France's finances on a sustainable path. The risk of a re-run of the Eurozone debt crisis, albeit in a different form, is increasingly being discussed in market circles, which is casting a shadow over the Euro.
Adding to the Euro's woes, the USD and Sterling have both firmed against it this morning. Despite Friday's disappointing US jobs report, the Dollar has continued to attract safe-haven demand amid the ongoing geopolitical uncertainty in the Middle East. Meanwhile, BoE policymaker Catherine Mann has indicated that a further UK rate hike is needed to manage inflation risks which has increased market expectations for further UK rate hikes next year and demand for the Pound more .
As a result, the GBP/EUR is up nearly 2-cents from this time last week and trades towards the highest levels since June 2025. The EUR/USD has continued its run lower and currently trades around the lowest level since May 2025. The GBP/USD is broadly steady and remains close to the lower end of where it has traded throughout this year, as the dollar strength and sterling resilience generally cancel each other out.