An ECB policymaker has spoken about France’s economic growth, stating that while it’s not strong, it is still positive. There is a strong emphasis on dealing with France’s debt issues, and confidence is expressed in managing them effectively. The official believes France should keep pace with other European countries. The suggested strategy involves cutting spending and raising taxes to tackle these problems.

Fiscal Tightening

Given France’s slow growth and high debt, we expect a time of fiscal tightening is on the horizon. Any serious attempts to reduce spending and increase taxes may hinder the French economy in the months ahead. This suggests a cautious approach to French assets. This outlook is evident in the French stock market. The CAC 40 index has lagged behind the German DAX by nearly 4% in the last quarter. Derivative traders might consider purchasing put options on the CAC 40 or on ETFs that track French stocks. This offers a direct way to protect against potential declines due to decreased consumer spending and business investment. We are also closely monitoring the sovereign debt markets for signs of trouble. The gap between French 10-year government bonds and German Bunds has recently widened past 60 basis points, indicating that investors are anxious. A strategy involving shorting French OAT futures while buying German Bund futures could be profitable if this credit risk premium continues to rise.

European Currency Impact

The struggles of Europe’s second-largest economy may weigh down the euro. Recent data from August 2025 shows Eurozone manufacturing PMI still indicating a contraction. This French-specific issue contributes to a wider regional slowdown. We recommend looking into buying put options on the EUR/USD pair, aiming for levels below 1.05 in the coming weeks. However, we must also take into account the monetary policy aspect. A slowdown in France might push the European Central Bank towards a more cautious stance, even though Eurozone inflation was slightly above target at 2.3% last month. If there are signs of delaying further rate hikes, it could stabilize equities, so it’s wise to manage positions with stop-losses in case the policy direction changes. Create your live VT Markets account and start trading now.

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