05 Dec 2024

The abrupt departure of the French government has once again intensified the ongoing political crisis, as observed by ING’s FX analyst Chris Turner.

French political developments are likely to keep the euro under pressure. "Weak business investment suggests that France's growth will be limited to 0.6% next year. Coupled with a projected contraction of 0.2% in Germany, the eurozone's GDP for the year is expected to reach only 0.7%, largely influenced by southern Europe. We anticipate that the European Central Bank will reduce rates to 1.75% next year. This scenario is expected to maintain short-dated EUR:USD rate spreads at approximately 200 basis points in favor of the dollar throughout the year, potentially bringing EUR/USD close to parity, as noted by Barry Eichengreen."

"Regarding eurozone data released today, a downward adjustment in eurozone retail sales is anticipated. We believe that short-term resistance at 1.0550 may limit the EUR/USD recovery, and it is plausible that EUR/USD will remain around 1.0500 in the coming days, especially considering there are over $5 billion in 1.0500 FX option strikes set to expire this week."