Political uncertainty in France is putting pressure on the Euro. President Emmanuel Macron’s reappointment of Prime Minister Sébastien Lecornu isn’t easing investor worries. The Euro is trading close to a two-month low at about 1.1576 against the US Dollar, dropping 0.35% today. Challenges in France intensified when the conservative Les Républicains party expelled six lawmakers for accepting ministerial positions, raising doubts about the government’s ability to pass the 2026 budget.

US Dollar Gains Strength

In contrast, the US Dollar is strengthening as the US and China seem to be easing trade tensions. The US Dollar Index has climbed above 99.00 after President Donald Trump softened his stance on tariffs against China. At the same time, the partial US government shutdown has entered its 13th day, with no resolution expected until after the Columbus Day holiday. The possibility of two more interest rate cuts by the Federal Reserve could limit the Dollar’s growth since traders anticipate further easing measures to tackle labor market issues, even though inflation remains above the 2% target. Today’s heat map shows that the US Dollar is the strongest against the Euro, showcasing its stability amid global economic changes. With the Euro weakening due to political issues in France, we should explore strategies that benefit from a declining EUR/USD. The current instability makes investors anxious about France’s capability to handle its budget, which increases pressure on the Euro. Recent data shows that the gap between French and German 10-year government bonds has widened by 15 basis points in the past week, indicating growing risk aversion. A similar trend occurred in late 2019 when political turmoil and trade tensions caused Euro volatility. This history shows that concerns about France’s finances can create persistent downward pressure on the Euro. Just like traders recognized then, we should see today’s situation as a significant obstacle for the Euro, not just a temporary issue.

Strategies For Falling EUR/USD

Given this outlook, buying put options on the EUR/USD is a simple way to bet on a decline while managing risk. This strategy allows us to profit if the pair falls below a certain level, with our maximum loss limited to the premium paid for the option. It’s a defined-risk approach to express a bearish view in an uncertain market. The strength of the US Dollar adds further appeal to this trade, making short EUR/USD positions more enticing. Unlike the earlier situation when the Fed was cutting rates, the Federal Reserve is currently maintaining its stance, supported by recent data showing US core inflation at 3.1% and an unemployment rate of 3.9%. This divergence between a struggling Eurozone and a stable US gives the Dollar a clear edge. For a more budget-friendly option, we might consider a bear put spread. This involves buying a put option at one strike price and selling another at a lower strike price, which helps lower the initial cost of the trade. This strategy works well if we expect a moderate decline in the EUR/USD over the coming weeks. Nevertheless, we should remain vigilant, as central bank announcements can quickly change the situation. Any comments from European Central Bank officials indicating discomfort with the Euro’s weakness could temporarily boost the currency. Similarly, any unexpected resolution to France’s political issues could lead to a sharp turnaround. Create your live VT Markets account and start trading now.

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