Euro underperforms as French risks spread across Eurozone

• EUR/JPY declines to near 177.45 as French political risks spread across Euro nations.
• The ECB is expected to leave policy rates unchanged at the October policy meeting.
• BoJ’s Governor Ueda reiterates that the central bank remains on a gradual monetary tightening path.

The Euro (EUR) underperforms its major currency peers on Wednesday, trading 0.13% down at around 177.45 against the Japanese Yen (JPY) in the European trade.

The major currency continues to face selling pressure as market experts argue that the impact of the French political crisis is already spreading across the Eurozone.

French turmoil fans bond contagion and Euro stress

Analysts at Deutsche Bank highlight how the latest bout of French political turmoil has rippled across European markets, noting that “those market concerns around French debt cascaded across other countries and asset classes too.” They point out that “the Italian 10yr spread over bunds was also up +4.7bps on the day to 111bps, whilst Spain’s was up +1.2bps to 62bps.” Equity markets were similarly hit, with “the STOXX Banks index (-2.07%)” dropping to a four‑month low and “even bigger declines for the French banks, including Société Générale (-3.41%), Crédit Agricole (-2.64%) and BNP Paribas (-2.48%).” In FX, Deutsche Bank adds that “all that caused fresh pressure for the Euro itself, which weakened -0.23% against the US Dollar to close at $1.1213.”

Rabobank’s RaboResearch team characterises the fixed income reaction as “an ugly bond reaction to the ugly protests and looting in France (and Belgium and Italy, following earlier peaceful protests in Spain and Portugal) with 10-year French yields +13bps, Italian +8bps, and German +3bps.” They stress that “even if we only focus on fiscal metrics, French 10-year borrowing costs are now half a rate hike higher than Friday,” underscoring how quickly funding conditions have tightened.

Looking ahead, Rabobank frames what it calls “the hypothetical whispered realpolitik binary” facing policymakers as a choice “between the ECB bailing France out if needed, at a cost to the Euro and the fury of Germany, and not doing so at a cost to EU economic, political, and market stability.” The bank also raises the question: “Could the ECB bail everybody else out from French contagion and leave Paris to sort out its mess?” Against that backdrop, Rabobank concludes that “whatever happens now, more volatility seems far more likely than a ‘reversion to mean’.”

On the monetary policy front, market experts see the European Central Bank (ECB) leaving interest rates unchanged at its policy meeting later this month.

ECB expected to hold rates steady as Danske Bank reiterates 2.50% deposit call

Analysts at Danske Bank’s Danske Research Team report that they “published a new ECB call yesterday,” reiterating their expectation that the central bank will “keep policy rates unchanged on Thursday 29 October, with the deposit rate at 2.50%, in line with consensus and market pricing.” This stance underscores their view that the current setting remains appropriate, with the ECB likely to maintain its present rate configuration at the upcoming meeting.

Meanwhile, the Japanese Yen trades higher against its currency peers, except for the Australian Dollar (AUD), as Bank of Japan (BoJ) Governor Kazuo Ueda reiterates gradual policy normalization.

Ueda leans cautiously hawkish as inflation loop strengthens in Japan

FXS Speechtracker scores the speech at 7/10, slightly below BoJ Governor Ueda’s historic 7.4/10 baseline, but the emphasis on “underlying inflation near 2%” and a positive wages–prices loop marks a mildly hawkish tilt. He highlights demand-led and supply-driven inflation, a tight labor market, and the likelihood of steady long-term rate increases if the short-term policy rate is raised, signaling growing comfort with gradual policy normalization while keeping financial conditions accommodative.

At the same time, Ueda stresses no change in the fundamental bond taper approach and refuses to preannounce emergency JGB measures, underscoring a cautious stance on market intervention. The message that properly calibrated policy is needed to anchor core inflation near 2% and stabilize the JGB market supports a view that the Yen could gain on expectations of a slow but persistent shift away from ultra-easy policy, even as the BoJ remains data-dependent and vigilant about market instability.