EUR/USD rose primarily due to weakness in the US Dollar. This came after market expectations that French Prime Minister Lecornu would survive no-confidence votes. While political stability in France helped, it also brought budget challenges that affected pension reform. As a result, the 10-year OAT-Bund spread stayed above 75 basis points, putting pressure on the Euro. However, the Euro became less affected by the French risk premium.

Market Drivers And Speculations

With no government collapse expected before the end of the year, EUR/USD may begin to focus on traditional market factors like interest rates and stock prices. The US Dollar is still at risk, and it could rise above 1.750, with 1.180 likely within reach. The upcoming meeting between Trump and Putin might stir speculation about a ceasefire in Ukraine, which could influence the Euro. In the Netherlands, the upcoming elections are not considered a major threat to the Euro. A divided parliament is likely, with most parties hesitating to work with Geert Wilders’ PVV party, despite it leading in polls. This situation suggests stability in politics without severe effects on the Euro. The recent rise in EUR/USD seems driven more by a weak dollar than by strength in the Euro itself. The US CPI data for September 2025 showed a mild increase of 2.5%, reinforcing predictions of another Federal Reserve interest rate cut before year-end. This has added downward pressure on the US dollar overall. The 10-year OAT-Bund spread remains around 80 basis points, highlighting worries about France’s financial direction after freezing pension reforms. This ongoing risk premium indicates that long positions in the Euro could face political instability. Options traders might think about buying low-cost, out-of-the-money EUR puts as a hedge against a sudden market change.

Policy Divergence

With much of the political risk in France already reflected in prices, the main focus is now on the clear policy differences between the ECB and the Fed. Eurozone inflation has remained persistent, sitting just above 3% in the latest report, leading the ECB to indicate that rates will stay higher for a while. This is in stark contrast to the more dovish approach from the Federal Reserve. Given the fragile state of the dollar, a breakout above the 1.1750 resistance level seems increasingly likely, putting the 1.1800 psychological mark in play. In the options market, one-month implied volatility has dropped to 5.5%, making bull call spreads an effective strategy for this potential move. This approach lets traders take advantage of upward movements while capping their maximum risk. The upcoming Trump-Putin meeting adds a significant variable that could boost the Euro. Any credible hints of a ceasefire in Ukraine would likely lead to a sharp decline in European natural gas futures, which have experienced volatility since the conflict began in 2022. This would be very positive for the Euro, possibly driving it past the 1.1800 target quickly. Meanwhile, the earlier preview of the Dutch elections appears insignificant for the currency as we near voting day. Polls continue to indicate a fragmented outcome, preventing the Eurosceptic PVV party from forming a government. This lack of a clear catalyst keeps the attention on the broader macroeconomic situation. Create your live VT Markets account and start trading now.

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