Euro remains on the back foot amid French debt concerns, US Dollar strength

EUR/USD gives up its earlier gains on Monday as the US Dollar (USD) remains firmly bid across the board, while French political and fiscal uncertainty weighs on the Euro (EUR). At the time of writing, the pair trades around 1.1178, retreating from an intraday high of 1.1217.

The US Dollar Index (DXY), which tracks the Greenback against six major currencies, trades around 102.35, near levels last seen in April 2025. The Dollar’s strength keeps EUR/USD near 17-month lows as traders assess European fiscal risks and await US inflation data later this week.

Analysts at ING note that “EUR/USD is consolidating near 1.12, and support remains fragile” as ongoing French political and fiscal uncertainty continues to weigh on the single currency. They point out that French debt spreads “remain near their widest,” with Marine Le Pen's recent counter-budget proposal “raising more questions than it answered” and doing little to calm market nerves.

In theory, ING says, “the French government's budget proposal of €43bn in new savings will be debated in parliament this week,” but consensus is that this is likely to “make little progress,” even if the government might ultimately be able “to pass this budget by decree.” In that scenario, “protagonists in parliament might avoid trying to bring down the government, which would make the French debt crisis worse than it already is,” ING cautions, adding that “this is hardly a euro positive, however.” Against this backdrop, they observe that “speculators and the FX options market remain quite bearish on EUR/USD currently, although positioning is starting to get a little stretched.”

At the same time, Middle East tensions keep inflation risks elevated on both sides of the Atlantic. Europe’s reliance on imported energy leaves its economy exposed to higher fuel costs, which squeeze household spending and business profits. This makes the ECB’s task harder, as it needs to contain inflation without putting too much pressure on growth.

The European Central Bank (ECB) has raised interest rates twice this year, lifting its deposit facility rate to 2.50%. With Eurozone inflation reaching 3.8% in September, well above the bank’s 2% target, expectations of another increase before year-end remain in place. A Reuters poll points to a pause at the October 29 meeting, followed by a 25-basis-point (bps) hike in December.

Meanwhile, the Federal Reserve (Fed) raised interest rates by 25 bps in September to 3.75%-4.00%, while most policymakers indicated that one more increase could be appropriate this year to support a timely return of inflation to the central bank’s 2% target.

Traders now look ahead to September’s US Consumer Price Index (CPI) report on Wednesday, followed by the Producer Price Index (PPI) on Thursday. The releases could reshape expectations ahead of the Fed’s October 27-28 meeting, with the CME FedWatch Tool showing around an 80% chance that the central bank will keep interest rates steady this month.