Euro Starts December Under Pressure 

On Monday, the Euro softened against the US dollar amid concerns that the French government could collapse, potentially stalling efforts to address the country’s mounting budget deficit. The EURUSD pair extended its losses following strong US manufacturing data from ISM, declining by 0.73% to close at 1.0497. 

(EURUSD Daily Price Chart, Source: Trading View) 

In Europe, the risk premium for holding French government bonds over German benchmarks spiked after Jordan Bardella, leader of France’s far-right National Rally (RN) party, suggested his party would support a no-confidence motion unless a last-minute compromise is reached. 

Political instability in France and stronger-than-expected US economic data have added to the euro’s woes at the start of December. As anticipated, France’s interim government is on the verge of losing a no-confidence vote. With new elections off the table until summer, addressing the budget deficit in the near term appears unlikely. 

The yield spread between French and German 10-year government bonds—a measure of the risk premium investors require—widened by 7.6 basis points to 87.3 basis points. This followed a peak of 90 basis points last week, marking the highest level since the eurozone’s 2012 sovereign debt crisis. 

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