$EURUSD

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EUR/USD is trading at 1.12316, down 0.86% on the day, and the move is not simply a story about dollar strength. It is a story about the euro itself. The single currency fell through 1.1250 for the first time since July 2025, and it did so while the dollar was not even rallying that aggressively. The driver is on the European side of the pair, and it has been building for weeks.

The French-German 10-year yield spread has widened to 127 basis points, its highest level since 2012. France’s 10-year OAT yield touched 4.87% on Thursday, briefly nearing the 5% mark that would put French borrowing costs at levels not seen since the eurozone debt crisis. The German Bund, meanwhile, trades at 3.59%. The gap between the two has widened by 9 basis points in a single session and by roughly 47% since the start of 2026. That spread is the market’s measure of the risk premium required to hold French debt, and it is telling investors that France is no longer priced as a core eurozone credit.

The immediate catalyst is the budget. Prime Minister Sébastien Lecornu’s government is pushing a plan that aims to deliver €54 billion in savings to bring the public deficit from 5.4% of GDP in 2026 down to 5% in 2027. But the credibility of that number is being questioned. A senior official told the French press that the €54 billion figure “does not correspond to anything reliable,” because it mixes real spending cuts with accounting measures and existing savings. The head of France’s public finance watchdog, the Haut Conseil des Finances Publiques, has publicly cast doubt on the government’s fiscal projections, noting that the deficit reduction appears to be based on optimistic growth assumptions and one-off measures rather than structural reform. When the independent watchdog says the numbers do not add up, bond markets listen.

The issuance calendar adds pressure. Agence France Trésor plans to sell €340 billion in medium- and long-term debt net of buybacks in 2027, a record amount and a roughly 10% increase from 2026. Borrowing costs are projected to reach €72.9 billion. France is asking investors to lend it more money while offering less credibility on how it will be repaid. That combination forces yields higher. Vanguard warned this week that France is “degrading credit,” and Moody’s has already downgraded the country’s rating. The political backdrop makes it worse. France is heading into a pre-election period, and the fiscal consolidation needed to stabilize debt would require unpopular choices that no government wants to make before voters go to the polls.

The euro’s decline is not being offset by higher yields, which is the unusual part. Normally, when a country’s bond yields rise, its currency strengthens because higher rates attract capital. That is not happening with France. The euro slid 0.3% against the dollar even as French yields surged. That divergence tells you that investors are not treating higher French yields as a sign of economic strength; they are treating them as a risk premium. Capital is leaving France, not flowing into it. French bank stocks fell 1.6% on the same day, leading the CAC 40 lower. Italy’s spread widened to 104 basis points, and Greece’s to 76. The risk is not contained to France. If French bonds continue to sell off, it could spread through the eurozone periphery faster than policymakers can respond.

Hedge funds have positioned for exactly this scenario. According to data from the Depository Trust and Clearing Corporation, the number of large options trades betting on euro weakness over the past two days has been more than double the number betting on gains. The Commodity Futures Trading Commission reported that leveraged funds were net short the euro by 41,338 contracts as of late July, and positioning has only grown more bearish since then. The market is not waiting for confirmation that the French budget will fail. It is positioning ahead of it.

The technical picture on your daily chart confirms the weakness. EUR/USD has broken below its 5-day moving average at 1.13332, its 10-day at 1.13828, and its 30-day at 1.15294. The MACD has crossed into negative territory, with the MACD line at -0.00249 and the DIF at -0.00714, both below the signal line. The RSI is approaching oversold levels, but that does not necessarily mean a bounce is coming. In a currency pair driven by a structural shift in fiscal risk, oversold conditions can persist. The 1.1200 level is the next support zone. If that breaks, the 1.1100 area comes into focus. ABN AMRO maintains a year-end forecast of 1.15 but notes that the risks are increasingly tilted to the downside. ING warned that a move to 1.110 is possible if the spread continues to widen.

The dollar, meanwhile, is finding support from its own set of factors. The 30-year Treasury yield is at 5.595%, the highest since 2002. The Fed has raised rates and is debating another increase. US economic data has been resilient enough to keep the dollar bid. But the euro’s decline is outpacing what dollar strength alone would justify. If the French budget fails to convince markets, the euro could fall further even if the dollar does not rise. That is the scenario the market is starting to price in, and it explains why EUR/USD is trading at a 15-month low while the dollar index is not at a multi-year high. The weakness is in the euro, not just in the pair.

This article is not investment advice. Analysis is based on publicly available information and does not guarantee future outcomes.