The EUR/USD pair faces a slight decline, trading near 1.1630 during the Asian session on Wednesday, as political turmoil in France and a fluctuating US Dollar outlook take center stage.
Political Instability in France Drags on Euro
The Euro (EUR) is under pressure as French political instability casts a shadow over market sentiment. Prime Minister François Bayrou’s minority government is facing a confidence vote on September 9, with all three opposition parties refusing to support his €44 billion budget package. If Bayrou fails to secure the vote, it could trigger further volatility in French assets, which already suffered a 1.7% decline in the CAC 40 index on Tuesday.
The uncertainty surrounding the French government adds another layer of concern for the Euro, as markets await further developments in the political landscape. Investors will also be looking at inflation data from key Eurozone nations set to be released on Friday for fresh insight into the region’s economic health.
US Dollar Faces Internal Struggles
On the flip side, the US Dollar (USD) faces its own set of challenges. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, ticked up to 98.35 but remains under pressure due to the political developments surrounding the Federal Reserve. US President Donald Trump’s recent move to fire Fed Governor Lisa Cook over mortgage allegations has sparked concerns over the Fed’s independence, dampening the US Dollar’s outlook in the long term.
Despite these internal struggles, the USD has managed to maintain some strength as traders weigh its outlook in light of both the French political crisis and the ongoing uncertainty regarding the Federal Reserve’s future stance on interest rates.
What’s Next for EUR/USD?
As EUR/USD trades in the lower range, a potential risk-off sentiment may further weigh on the Euro if French political uncertainty escalates. However, the upcoming inflation data from the Eurozone and further clarity on the Fed’s actions will play crucial roles in determining the pair’s next move.
Traders should keep an eye on the developments in both France and the US for the next potential catalysts. Any indication of political stability in France could lead to a rebound for the Euro, while any signs of Fed policy instability could tilt the balance in favor of the US Dollar.
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