France’s fiscal woes drag down the euro, euro/GBP set for worst monthly performance in years

(1) Due to the impact of French fiscal and political risks, the euro has fallen to its lowest level against the pound sterling since April this year, with a cumulative decline of over 2.3% this month, and is highly likely to record its worst single-month performance since the second half of 2022. (2) The pound's monthly gain against the euro leads all G10 currencies; after the UK budget plan was implemented, the market further magnified the differences in fundamentals between the UK and France. (3) France's poor deficit management has driven government bond yields to a 26-year high. Combined with frequent protests on the eve of elections, the euro as a whole remains under pressure. (4) According to strategists at Wells Fargo, economic uncertainty in France is significantly higher than in the UK, and the downward trend of the euro against the pound is set to continue, with a high probability of reaching the 0.83 level by the end of the year. (5) Economic divergence within the eurozone is intensifying, making it easy for a fiscal crisis in a single country to spread and drag down the overall euro exchange rate.