French deficit concerns push Euro to weakest level since May 2025

UniCredit strategist warns Euro may retest $1.10 level

The Euro fell below $1.12 against the U.S. dollar on Monday before recovering slightly, briefly touching $1.116 — its weakest level since May 2025, according to United Press International. The currency remained down about 1.2% from Thursday’s close and 6.66% from the start of 2026.

Kathleen Brooks, research director at XTB, told The Guardian: “Europe is taking the spotlight at the start of the week, as fiscal and political concerns hit the bloc. France is the epicenter of the concerns. However, Spain is also set to get ready for an early election, which is adding to investor worries.”

France’s current budget plan seeks to narrow the deficit to 5% of gross domestic product through $60.6 billion in cuts to pensions and departmental spending. The yield on France’s 10-year government bond has come under pressure amid concerns that a parliament without an overall majority following next year’s elections could derail the fiscal effort.

Analysts at leading European banks have cautioned that any government in power will need to take further action. Economists at a British bank told CNBC that even if the budget plan passed in the coming months, it would likely miss its fiscal targets. “French fiscal and political developments cloud the euro area outlook, with fiscal fundamentals remaining weak and unlikely to reach an inflection point before next year’s presidential election,” they said.

ING said the proposed cuts would “not resolve France’s structural fiscal problems” because the deficit reduction would not be sufficient to make a meaningful dent in the debt-to-GDP ratio, while pensions, other seniors’ expenditures, and interest payments continue to mount. “So far, none of the main presidential candidates has presented a sufficiently detailed plan explaining which expenditure would be reduced, which taxes would change or how the debt ratio would eventually be stabilized,” ING strategists said.

The pressure is showing up in sovereign bond markets. With the yield on France’s 10-year bond near a 24-year high, the spread with German borrowing costs has reached its widest level since 2012. The Euro-area is a currency union in which the European Central Bank sets a single interest rate for all 21 member countries regardless of their individual fiscal situations.

The Euro’s slide rippled into European equity markets. France’s blue-chip CAC 40 Index traded 0.7% lower in mid-afternoon trade in Paris on Monday.

UniCredit currency strategist Roberto Mialich wrote that investors are not yet finished selling the Euro, suggesting the $1.10 level could be tested again in the near term. “This is also because growing political tensions across the eurozone (primarily in France and Spain) and fears of contagion across the European sovereign debt market are putting pressure on the euro,” Mialich wrote.