EUR/USD Drops Below 1.0500 Amid French Government Crisis

The EUR/USD pair slipped to approximately 1.0490 during the early European session on Tuesday as the Euro (EUR) weakened against the US Dollar. The decline is driven by growing concerns over political instability in France, the Eurozone’s second-largest economy.

French Prime Minister Michel Barnier’s controversial decision to push a social security bill without a parliamentary vote has triggered a backlash from opposition parties. These parties have announced plans to file a no-confidence motion against Barnier, potentially leading to the collapse of the French government this week.

The rising political uncertainty has added selling pressure on the Euro. Additionally, the yield spread between French and German 10-year government bonds increased by 7.6 basis points (bps) to 87.3 bps, nearing last week’s high of 90 bps—the highest since 2012. Kyle Chapman, an FX market analyst at Ballinger Group, commented, “Crashing political sentiment in France and another strong US activity report have given the Euro a rough start to December.”

On the US front, manufacturing data released on Monday showed notable improvement in November, reflecting the resilience of the US economy and strengthening the US Dollar. Market participants are now focused on Friday’s Nonfarm Payrolls (NFP) report, which could offer clues about the Federal Reserve’s next move ahead of its December 18 meeting. While the Fed remains data-dependent, the NFP report will play a critical role in shaping expectations for potential rate cuts.