The Euro has bounced back a bit after French Prime Minister Sébastien Lecornu decided to pause the pension reform until after the presidential election in 2027. This choice is seen as a move to ease tensions with trade unions and opposition parties, helping to calm fears of political unrest in France.

Impact of Political Moves

This decision is expected to stabilize French politics and lower the risk of a government crisis. A no-confidence vote is on the agenda for Thursday, but Lecornu’s announcement has made it less likely to succeed, as it meets some of the opposition’s requests. Despite changes in France, the Japanese Yen is still strong due to ongoing political issues and discussions about intervention from the Bank of Japan. The collapse of the ruling coalition has raised concerns regarding the new LDP leader, particularly about sudden currency movements without intervention. The EUR/JPY exchange rate is quite unstable due to mixed influences: France’s temporary policy relief and Japan’s political challenges. The values of currencies like the Euro and Japanese Yen change with these developments, which can be seen in a heat map showing currency percentage shifts. The Euro has gained against the Australian Dollar, while the US Dollar has remained steady. As of October 14, 2025, the political news from Paris is giving the Euro some breathing room. Prime Minister Lecornu’s choice to pause the 2023 pension reform has momentarily calmed the markets, evident in a narrowing gap between French and German 10-year bonds, which tightened by 5 basis points to 62 bps this morning. This likely ensures the government will survive Thursday’s no-confidence vote, alleviating a significant short-term risk for the Euro.

Strategies for Traders

Meanwhile, the Japanese Yen continues to be the stronger currency, influenced by political instability in Tokyo and the credible threat of action from the Bank of Japan. Similar warnings were issued in late 2024 when the USD/JPY exchange rate approached 160, and the market is now betting on increased likelihood of intervention. One-month implied volatility for JPY pairs has surged to 12.5%, its highest in three months, indicating that traders are ready for potential sudden shifts. With these opposing factors at play, we expect the EUR/JPY exchange rate may remain within a specific range, limited by resistance near the 50-day moving average around 176.50. For options traders, selling short-dated strangles could be an attractive strategy to earn premium, though the heightened volatility introduces extra risk. A significant drop below the 175.00 support level would suggest that the Yen’s strength is overpowering the temporary relief for the Euro. In the coming weeks, traders should take precautions against downside risk in this currency pair. Purchasing puts on EUR/JPY or setting up put option spreads can provide a defined-risk opportunity to profit if political uncertainty in Japan heightens or if the Bank of Japan steps in to bolster the Yen. We see the current stability coming from France as a brief pause in a market still leaning towards a stronger Yen. Create your live VT Markets account and start trading now.

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