EUR/USD fell by about 0.85% on Monday and dropped to just above 1.1150. The pair broke through the 1.1200 level and updated its low since May 2025. This time, the main pressure on the euro came not from the US, but from France, where the cost of government borrowing is rising and uncertainty around the budget persists.
The euro is weakening not only against the dollar
The pressure spread across several currency pairs at once. EUR/CHF fell below 0.9300, and EUR/GBP was around 0.8475. At the same time, demand continued to shift toward the dollar. The DXY index, which shows the dollar's exchange rate against a basket of six major currencies, is holding around 102.20. These are the highest levels since April 2025. GBP/USD fell to about 1.3200, AUD/USD - to 0.6935, NZD/USD dropped below 0.5600, and USD/CAD rose above 1.4250.
What is happening with France's debt
The main trigger was the situation in the French government bond market. The yield on 10-year French bonds rose to about 4.89%, and earlier approached the 5% mark. This is one of the highest levels in recent decades. At the same time, the yield on 10-year German bonds fell to about 3.41%. As a result, the gap between the cost of borrowing for France and Germany widened noticeably.
Why this puts pressure on the euro
Rising government bond yields mean that investors are demanding greater compensation for risk. Previously, a sell-off in French bonds could remain a local debt market story and hardly affect the euro's exchange rate. Now the situation has changed. Investors are beginning to factor French budget risks directly into the value of the European currency.
The main question is the budget
The French government is operating without a stable parliamentary majority. For next year, the authorities plan a budget deficit of about 5% of GDP, and they expect to return to the EU norm of 3% by 2029. At the same time, the ratio of government debt to GDP may increase from about 119% to 122%. The main risk is whether the government can get the budget through parliament without significant concessions. The more uncertainty around the budget, the greater the pressure on French bonds and the euro.
Why the dollar is strengthening
France's problems coincided with strong demand for the American currency. DXY is around 102.20, and the dollar is strengthening against several major currencies at once. With this combination, EUR/USD is under pressure from two sides at the same time: the euro is weakening due to European risks, while the dollar receives additional demand.
What's next
The next reference point will be a speech by ECB Chief Economist Philip Lane. Later, the market will receive the US ISM services business activity index. For EUR/USD, two factors are important right now: the development of the budget situation in France and the further dynamics of the US dollar.
Did you short the euro on the breakout of 1.1200?
A move of about 0.85% in EUR/USD in a single session is already quite noticeable for the currency market. But in prop trading, choosing the right direction is not the only thing that matters. Different programs have different daily drawdown limits, rules for holding positions over the weekend, available currency pairs, and trading conditions during important events. It is better to check this before paying for a challenge, and not already during trading.