Commerzbank analysts Michael Pfister and Tatha Ghose have analyzed the impact of political risks in the Eurozone, particularly focusing on France, Spain, and Italy, and their effect on the EUR/USD exchange rate and the trade-weighted Euro. Their research, covering data since 2010, indicates that the Euro tends to depreciate more sharply when multiple Euro area countries and the banking sector are simultaneously under stress. Specifically, they note that when European banking stress is included as an indicator, there is a median depreciation of 0.73% in EUR/USD, adjusted for macro factors, over five trading days [1].
However, the analysts emphasize that when only one country is affected by political stress, the impact on the Euro is not particularly strong. They describe the current episode of French spread widening as historically normal, with the adjusted EUR/USD movement over the last ten trading days being similar to previous crisis-related stress episodes, such as in June 2024 [1].
Commerzbank further notes that a more pronounced reaction in the Euro would likely occur only if the stress spreads to the banking sector and investors begin seeking safety in the Swiss franc. At present, there is little evidence of such a development, suggesting that the market's response remains contained [1].
CONCLUSION
Commerzbank's analysis suggests that the current political stress in France has led to a normal and limited reaction in the Euro, with no significant market disruption observed. Unless the stress spreads to the banking sector or triggers broader investor flight, the Euro is expected to remain relatively stable.