Euro to US Dollar Outlook: Political Uncertainty Drives Flight to USD Safety

Modified: Monday, 6 October 2025 21:45 BST - Written by David Woodsmith

STORY LINK Euro to US Dollar Outlook: Political Uncertainty Drives Flight to USD Safety

The Euro has weakened sharply amid political upheaval in Europe and Asia, with the EUR/USD exchange rate sliding toward 1.1650.

Foreign exchange analysts warn that France’s government instability and Japan’s yen-driven turbulence could amplify fourth-quarter volatility across FX markets.

EUR/USD Forecasts: Slides to 10-Day Lows

French and Japanese political developments have stunned markets on Monday.

The Euro dipped sharply on Monday following news that French Prime Minister Lecornu had resigned.

The Euro to Dollar (EUR/USD) exchange rate slumped to 10-day lows near 1.1650 before trading around 1.1670.

A slide below 1.1650 support would potentially trigger further losses.

The dollar also gained net support following the unexpected win for Takaichi in the weekend Japanese LDP leadership contest as the yen posted heavy losses with USD/JPY jumping 2% higher to above 150.

The US is also facing major political pressures which may curb EUR/USD selling with the threat of higher volatility.

French Prime Minister Lecornu resigned after only 26 days in office and less than 24 hours after announcing his cabinet.

There was a sharp sell-off in French bonds with the 10-year yield jumping to 3.60% from 3.51% at Friday’s close with fresh concerns over underlying instability.

Pepperstone Senior Research Strategist Michael Brown commented; “The bigger concern for the market is really what comes next, because if Macron decides to appoint another prime minister that’s going to be the sixth PM in two years, who will again face the exact same challenging parliamentary arithmetic, the exact same problems when trying to pass the budget, so that feels a little like a non-starter.”

He added; “I think the bigger question how does this all resolve itself? Because there doesn’t seem to be an obvious solution, or obvious silver bullet that we can look to, to resolve it overnight."

Danske Bank analyst Kirstine Kundby-Nielsen commented; “It’s concerning that the new cabinet only lasted 12 hours. There seems to be no willingness in parliament for a budget to be passed, so I think yields higher, pressure on euro-dollar in the near term.

The Euro-Zone Sentix investor confidence index improved to –5.4 for October from –9.2 previously and stronger than consensus forecasts of –7.5.

Sentix commented; “Investors appear to have overreacted somewhat pessimistically in September.” Nevertheless, it added; “Germany in particular continues to face strong headwinds, as reflected in the real data.

US political developments will also continue to be watched closely.

There has been no breakthrough in ending the US government shutdown with votes failing to gain necessary support in Congress.

There will be further disruption to US data releases which will increase uncertainty surrounding the economic outlook.

ING; “In general, the longer the US government shutdown continues, the more the dollar can face some pressure. But we must also acknowledge that the dollar has shown decent resilience so far, confirming our perception that markets have considerably raised the bar for how bad US news needs to be to build more USD shorts.”

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TAGS: Euro Dollar Forecasts