Euro remains depressed as German politics, France's debt offset strong PMI figures

• EUR/USD holds lows near 1.1400, about 0.5% down in the week so far.
• Bright Eurozone PMI data and lower Oil prices are failing to lift the Euro.
• Political uncertainty in Germany and France's soaring debt are keeping investors away from the common currency.

The Euro (EUR) remains on its back foot against the US Dollar (USD) on Wednesday, extending its decline to two-and-a-half-month lows after dropping about 0.5% so far this week. The EUR/USD pair trades at session lows of 1.1414 at the time of writing, unable to draw support from the bright Eurozone Purchasing Managers' Index (PMI) figures and lower Oil prices amid growing concerns over German political uncertainty and France's ballooning debt.

Eurozone’s preliminary business activity data from September beat expectations on Wednesday, with the HCOB Services PMI jumping to 53, its highest level in 10 months, well above the 51.7 market forecast and last month’s 51.6 reading. The HCOB Manufacturing PMI remained steady at 52.7, in line with the market consensus.

Before that, German PMIs showed a mixed picture, with the Services sector’s activity growing to 52.9 in September after five months of contraction and also beating expectations of a 50 reading. Manufacturing activity, on the other hand, slowed down to 53.8, from 54.3, although still at levels consistent with solid business activity.

German political uncertainty, France’s debt weighing

The Euro, however, is facing political issues, keeping investors on edge. German Chancellor Friedrich Merz suffered a severe reversal at state elections in Berlin and especially in Mecklenburg-Vorpommern, where his Christian Democratic Union (CDU) party was barred from the regional parliament.

These results have raised questions about Merz’s support and cast a shade over the Eurozone’s EUR 2 trillion budget proposal that includes a significant boost to the block's defence program, which might be stopped by the emerging pro-Kremlin Allianz fur Deutschland (AfD).

Beyond that, French debt has reached its highest level since 1978 in a context of declining investors’ confidence in government bonds. With the prospects of any significant tightening off the table and with the country facing spiralling borrowing costs, concerns of a fiscal crisis in the Euro area are growing and might pose a significant weight on Euro crosses.