The Euro has recently been pressured to yearly lows, primarily due to a hawkish reassessment of Federal Reserve policy, according to ING’s Chris Turner. However, Turner warns that the rapid widening of the French OAT-German Bund spread to +127 basis points is an alarming development, potentially introducing additional risk premium into the euro and constraining the European Central Bank's (ECB) tightening cycle. While the sell-off in French debt is not yet fully priced into the euro, Turner suggests that further widening of the spread, combined with continued strong US data, could push EUR/USD into the 1.11-12 area. ECB officials, including Joachim Nagel, Christine Lagarde, and Isabel Schnabel, are expected to maintain a hawkish stance, but the likelihood of the ECB out-hawking the Fed remains slim at this stage [1].
Meanwhile, the British Pound has found support as EUR/GBP moves noticeably lower, indicating emerging euro weakness and a shifting UK narrative. ING’s Chris Turner highlights UK Prime Minister Andy Burnham’s speech advocating closer ties with Europe and a possible push to rejoin the EU after the next election. Turner notes that any move by the UK to rejoin the EU would likely be viewed positively by the foreign exchange market, referencing sterling's crash after the Brexit vote in 2016. Although clarity on EU re-entry is years away, markets are watching for potential sterling strength ahead of a planned UK-EU summit around 20 November [2].
Both articles point to independent euro weakness, with the French debt situation and UK political developments contributing to downward pressure on the euro. The usual hedge for eurozone political and budgetary risk, EUR/CHF, is currently being driven by rate spread dynamics rather than political concerns [2].
Market participants are closely monitoring the French OAT-Bund spread and US economic data for further euro downside, while the sterling may benefit from renewed EU engagement discussions and upcoming political events [1][2].
CONCLUSION
French debt risk and political uncertainty are weighing on the euro, while the British Pound is supported by speculation about closer UK-EU ties. Market sentiment is cautious, with medium impact expected as traders watch for further developments in French spreads and UK-EU negotiations. The euro remains vulnerable to both US policy and eurozone political risks, while sterling could see gains if EU re-engagement progresses.