EUR/USD: Euro Steady Near $1.1230 amid French Unrest Clouding Recovery

The euro traded near $1.1230 Monday as political uncertainty in France interrupted a potential recovery.

💶 France puts the euro back under spotlight

• The EURUSD was steady to slightly higher near $1.1230 in early Asian trading Monday, while the dollar index steadied around 101.83.
• Weekend protests (over 500,000 people) over high living costs and declining public services turned violent across France, prompting President Emmanuel Macron to appeal for calm (to no result).
• The concern is whether social unrest makes an already difficult task — repairing government finances without undermining growth — even harder.
• French government bonds are the key transmission channel. Watch the yield gap between French and German debt: a widening gap means investors demand greater compensation to hold French bonds.

🏦 Rate expectations offer mixed support

• ECB President Christine Lagarde said Saturday that rising borrowing costs would slow growth and reduce inflation pressures.
• The ECB has raised rates twice in four months, with another increase expected in December. Higher rates can support the currency, but tightening financial conditions also threaten economic activity.
• Across the Atlantic, traders assigned roughly a 16% probability of an October Fed hike but 92% for December. Expectations of a near-term pause have eased some dollar support, yet the prospect of further tightening remains an obstacle to a sustained euro-dollar recovery.
• Friday’s preliminary October PMIs are the week’s main economic test, comparing business activity in Europe and the US. September’s eurozone composite reading reached 53.1, indicating expansion.
• Evidence that Europe’s improvement is holding would help the euro; renewed weakness would leave buyers contending with both growth concerns and French political uncertainty.