The euro gained about 0.2% to $1.118, a day after sinking to its weakest level in a year. Lawmakers in Paris begin debating the revenue side of the 2027 budget on Tuesday evening, after a committee rejected the text.
The euro recovered a little ground on Tuesday. One of the reasons it fell is about to be debated on the floor of the French National Assembly.
By about 4:45 a.m. Eastern the euro was at $1.1181, up about 0.2%, having dipped to $1.1157 earlier in the session. It had fallen on Monday to around its 52-week low near $1.115. The U.S. dollar index slipped about 0.1% to about 102.1, a day after reaching its highest level in roughly 18 months. The yen firmed slightly to about 158 per dollar.
The French Calendar
French lawmakers begin debating the revenue section of the 2027 budget on Tuesday evening, after the text was rejected in committee. A vote on the first part of the budget is scheduled for Oct. 20, and Moody's is due to review France's credit rating on Oct. 23.
ING's strategists expect the euro to hold between $1.10 and $1.15 over the next few months. In a Monday note, they flagged the state of France's public finances as a drag that may persist into 2027.
Two Forces On One Exchange Rate
The euro is being pushed from both sides of the Atlantic. On the European side, the International Monetary Fund on Tuesday projected growth of 1.1% for the euro area this year, less than half its 2.3% forecast for the U.S. On the American side, Treasury yields above 5% and a Federal Reserve that is still signaling rate increases have kept the dollar in demand.
Tuesday's bounce came as Treasury yields fell, which narrowed one of those gaps for a few hours. Equities in Europe started the day firmer as well. The Stoxx 600 added about 0.4%, led by chemicals.
Where The Range Sits
At $1.118, the euro sits in the lower half of ING's expected range, about 1.6% above its floor and about 2.9% below its ceiling. A break below $1.10 would require a further decline of about 1.6%.
Market Implications
One reading is that the euro's slide is mostly about the dollar. If Wednesday's U.S. inflation data are soft and Treasury yields keep falling, the euro could recover without any change in Paris.
A second reading is that French politics are now a driver in their own right. A committee rejection, a contested floor debate and a rating review within 10 days of each other give investors several chances to demand a higher premium on French debt, which tends to weigh on the euro.
What To Watch
The tone of Tuesday evening's debate in Paris, the Oct. 20 vote and the Oct. 23 rating review are the domestic tests. Wednesday's U.S. inflation report will show whether the dollar's side of the trade keeps strengthening.