EURUSD Steadies Decline After France Riots

The euro is clinging to the 1.12 handle against the dollar after a weekend of rioting across France added a fresh layer of political risk to a currency already weighed down by fiscal worries.

More than half a million people marched in France at the weekend, with looting and arson in Paris, Lyon and Marseille marking some of the country's worst unrest in years. French bond yields pushed back towards their highest levels since 2002, while the dollar has drawn support from a hotter-than-expected US inflation print and a bout of risk aversion that handed the Nasdaq its worst week since June. Yet EUR/USD has so far held above last week's 17-month low, a sign that sellers may be running out of steam.

Latest Market Moves

• EUR/USD had been trading around 1.1225 as of Wednesday morning, still above the 1.1113 low set on 13 October, its weakest level since May 2025.

• French 10-year OAT yields climbed to around 4.96% on Tuesday after their biggest daily rise in nearly a month, with the premium over German Bunds widening to roughly 152 basis points.

• The euro's weakness has been broad-based, with EUR/GBP and EUR/CHF both down close to 1% over the past week.

• US Dollar Index had eased back to around 101.6 in early Wednesday trade, below where it stood before last week's CPI report.

• CAC 40 closed 1.1% lower on Monday, lagging the wider European market, before clawing back some ground in the sessions since.

France's Unrest Adds a Political Risk Premium

The riots have turned a slow-burning fiscal story into a more immediate political one.

Demonstrations that began last month with high school students protesting poor school conditions escalated at the weekend, with the government's count of affected businesses reaching around 3,000 by Monday. Authorities imposed curfews in several cities, while Prime Minister Sébastien Lecornu blamed the ultra-left for orchestrating the violence and launched a large-scale law enforcement operation to identify those responsible. Protest groups have already called a fresh round of demonstrations for Saturday, keeping the risk of further disruption on the table.

The unrest comes as the government tries to push its 2027 budget through a divided parliament, with a vote on the full bill scheduled for 17 November. France is expected to run a deficit of around 5.4% of GDP this year with public debt near 119% of GDP, and the budget puts next year's interest bill at roughly €91 billion. Any support for riot-hit businesses will land on those already stretched finances.

French Yields Price In the Uncertainty

The bond market has been the clearest gauge of investor nerves.

The 10-year OAT yield reached almost 5% in early October, its highest since July 2002, while the spread over Bunds hit nearly 159 basis points, the widest since November 2011. Both measures eased after the budget was filed but have pushed higher again since the weekend's violence. The Italian spread also widened on Tuesday, a sign that some of the stress is spilling into the wider eurozone periphery.

Moody's is due to review France's rating on Friday, with the country at risk of losing its last AA grade among the three major agencies. A downgrade would add to the pressure on French debt and, by extension, on the euro, which has been highly sensitive to the OAT-Bund spread since September.

Dollar Finds Support From Hot CPI and Haven Flows

On the other side of the pair, the dollar has enjoyed two tailwinds.

US consumer prices rose 3.7% year on year in September against expectations of 3.6%, and core inflation also beat forecasts with a 0.3% monthly gain, putting further Fed rate hikes back in play. The Dollar Index jumped around 0.6% shortly after the release, and markets are now pricing a high chance of a December hike, with the Fed's next meeting due on 27-28 October.

Risk aversion did the rest, as the Nasdaq Composite fell around 4.5% last week amid a sell-off in AI and chip stocks and a surge in oil prices. Those haven flows have started to unwind this week, with the Dollar Index slipping back below its pre-CPI level, giving EUR/USD room to stabilise.

EUR/USD Holds Above 17-Month Low

EUR/USD remains in a downtrend on the 8-hour chart, but the selling has lost momentum since the 13 October low.

The pair slid from above 1.1600 in mid-September to a 17-month low at 1.1113 and has since spent close to three weeks chopping sideways between roughly 1.1150 and 1.1270. The RSI has recovered from oversold territory to around 50, a sign that bearish momentum has faded even if buyers have yet to take control.

The key level is the descending trendline that has capped every rally since early October, currently near 1.1270. A break above it would suggest a base is forming and bring 1.1350 into view. A drop back below 1.1180 would put the 1.1113 low back in focus, with further French political setbacks the most likely trigger.

Source: SpreadEx | EUR/USD, 8-Hour Chart