The Euro is facing pressure, approaching a one-month low against the US Dollar due to political unrest in France. The EUR/USD pair is trading at about 1.1672, showing a slight recovery from earlier dips. French Prime Minister Sébastien Lecornu resigned shortly after taking office, worsening the political crisis in the country. President Macron has asked Lecornu to stay on until Wednesday to complete negotiations with political parties. This resignation highlights Macron’s declining political support, as demands for early elections increase.

US Dollar Trends

The US Dollar is gaining from the turmoil in France, attracting investors looking for safer assets. The US Dollar Index stands around 98.40, rising nearly 0.30% to its highest level since September 25. This reflects caution in global markets, even as the ongoing US government shutdown disrupts economic data releases. Traders remain cautious about the future of the Greenback, considering the possibility of more interest rate cuts from the Fed. The market is eager for insights from upcoming Fed speeches about monetary policy. Policymakers are emphasizing the need to balance inflation concerns with their decisions. The Euro is weak against the Dollar due to ongoing political risks in France, especially after Lecornu’s resignation. This uncertainty is affecting the Euro, which has struggled to recover. The EUR/USD exchange rate is currently near 1.1550, as the market remains wary of the French government’s stability. For derivative traders, this indicates that implied volatility in EUR/USD is likely to stay high in the coming weeks. Looking back at past political crises in 2024, we saw significant currency volatility, suggesting that buying options to hedge or speculate on sharp price movements could be wise. This market condition makes strategies that benefit from major price swings, regardless of direction, particularly useful.

Federal Reserve Outlook

The Dollar is benefiting from these safe-haven flows, but it faces challenges ahead. We recall the extended US government shutdown in the past, which briefly dampened economic data and weakened the Dollar until a budget deal was reached. This serves as a reminder that domestic US issues can quickly limit the Dollar’s strength, even when it’s favored globally. The Federal Reserve’s position is crucial, just like when we were tracking rate cuts in late 2025. While the Fed did implement a quarter-point cut during that time, recent inflation data for September 2025 showed a stubborn 3.1%, well above the 2% target. This indicates that the Fed will be cautious about easing further, providing some support for the Dollar for now. Given the ongoing political risks in Europe and a data-dependent Fed, we believe that put options on the EUR/USD offer a strong risk-reward opportunity. These options would profit from further Euro weakness while limiting losses if market sentiment improves unexpectedly. Traders should consider contracts expiring in the next 30 to 60 days to capture any immediate impact from political news or upcoming US inflation reports. Create your live VT Markets account and start trading now.

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