Euro slides against dollar, pound after French unrest

The euro fell against both the British pound and the US dollar on Monday, October 19, after a weekend of violent protests in France added to worries about the country's public finances. EUR/GBP slipped in early European trading, extending a downtrend that left the pair technically oversold, according to FXStreet. EUR/USD traded lower after briefly falling as much as 0.5% in Asian trading and then recovering part of the loss, Trading Economics reported.fxstreet.com+1

Traders see the unrest as a fiscal risk more than a direct shock to the currency. "The weekend unrest matters for the euro mainly through French bonds rather than directly," Kieran Williams, head of Asia FX at InTouch Capital Markets, told Reuters Thomson Reuters Corporation ↗ 2.16%.cnbc.com

Unrest hits French assets

Protests over high prices and shrinking public services turned violent over the weekend. Thousands of people were arrested, and shops were looted or damaged, Reuters reported. In a televised address on Sunday, President Emmanuel Macron condemned what he called "shocking" scenes of violence, according to Reuters. Protests also took place in Belgium, Italy and Portugal, FXStreet noted.fidelity.com+2

On Monday, French bonds and stocks did worse than the rest of Europe's markets, Reuters reported. The gap between French and German 10-year yields is at its widest since the 2011 eurozone debt crisis, FXStreet said. Rodrigo Catril, a strategist at National Australia Bank, said the protests could make it harder for the government to push through austerity, and that together these pressures could drive the euro below $1.11, Oninvest reported, citing Bloomberg.tradingkey.com+2

Budget fight looms

Prime Minister Sébastien Lecornu's minority government wants to cut the deficit to 5% of GDP in 2027, down from 5.4%. It faces a first key vote in the National Assembly on Tuesday, Fortune reported. France's public debt has passed 119% of GDP, Le Monde reported. Strategists at Barclays ↗ 1.21% said solving the budget problem is harder because of next year's presidential election and "a parliament without a stable majority," Oninvest reported.fortune.com+2

Dollar and pound find support

The dollar also gained support from geopolitical tension in the Middle East and from expectations of tighter Federal Reserve policy after hotter-than-expected US inflation data, FXStreet reported. In Britain, traders are waiting for jobs data on Tuesday and consumer prices on Wednesday, which could support the case for the Bank of England's first rate hike in more than three years in November. "We expect a 25-basis-point hike at the central bank's next meeting in November," said Dan Hanson, chief UK economist at Bloomberg Economics, according to FXStreet.fxstreet.com+1