The euro (EUR) strengthened on Friday, recovering to 1.1575 against the U.S. dollar (USD) during Asia’s trading session after four consecutive days of losses. The rebound came even as France’s deepening political crisis weighed on market sentiment.
Investors remained cautious following the resignation of French Prime Minister Sébastien Lecornu, who stepped down after just 27 days in office, intensifying uncertainty around President Emmanuel Macron’s leadership. According to The Guardian, Macron is expected to name a new Prime Minister by Friday evening—a move seen as critical for stabilizing France’s government.
Kieran Williams, head of Asia FX at InTouch Capital Markets, said, “The political shake-up in Paris has undermined the euro’s recent momentum, though technical support near 1.1550 has held firm.”
Still, broader risk sentiment supported the euro as markets priced in expectations of additional U.S. Federal Reserve rate cuts, which limited the dollar’s strength.
U.S. Shutdown Adds Pressure to Dollar
Across the Atlantic, the U.S. government shutdown entered its tenth day, with the Senate failing to pass key funding legislation that could end the deadlock. The prolonged standoff has delayed critical economic data releases, complicating the Federal Reserve’s policy outlook and limiting visibility into the health of the U.S. economy.
Analysts warn that a longer shutdown could undermine business confidence and weigh on the Greenback, giving the euro further room to advance.
Meanwhile, comments from Fed officials reinforced dovish expectations:
- John Williams, President of the New York Fed, said he is “comfortable” with another rate cut.
- Mary Daly, San Francisco Fed President, noted inflation was “coming in lower than feared,” signaling room for further easing.
According to CME’s FedWatch Tool, money markets now assign a 95% probability that the central bank will cut rates again in October, maintaining a supportive backdrop for risk assets and major currencies like the euro.
Focus Turns to Economic Indicators
Looking ahead, traders are eyeing the University of Michigan’s Consumer Sentiment Index, set for release later Friday, for fresh clues on the U.S. economy’s resilience. The data will help shape expectations for the Fed’s policy path into year-end.
While the euro’s recovery has been resilient, analysts caution that France’s political instability could continue to limit gains unless Macron’s new government quickly restores confidence.
Key market takeaways:
- EUR/USD holds steady near 1.1575, up 0.2% on the day.
- U.S. government shutdown drags into its 10th day.
- Markets expect 25 bps Fed rate cut in October with 95% probability.
With political risks in Europe and fiscal uncertainty in Washington, traders expect volatile sessions ahead—but for now, the euro remains in control above the 1.1550 level.
