Euro to Dollar Forecast: French Fiscal Crisis Threatens EUR/USD Slide to 1.05

Modified: Monday, 12 October 2026 09:01 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: French Fiscal Crisis Threatens EUR/USD Slide to 1.05

The Euro to Dollar exchange rate (EUR/USD) has fallen to 16-month lows below 1.1200 as escalating concerns over France's fiscal outlook combine with elevated US bond yields and persistent Dollar demand. While UBS believes Euro selling has become excessive, Crédit Agricole warns that a prolonged French political and budget crisis could push EUR/USD as low as 1.05 in its most pessimistic scenario.

EUR/USD Forecasts: French Fears Dominate

UBS is forecasting that the Euro to Dollar (EUR/USD) exchange rate will recover to 1.16 by the end of 2026 and advance further to 1.20 by September 2027.

Credit Agricole’s base case is for an EUR/USD advance to 1.17 by the end of next year, but warns that a worst-case scenario for France would risk triggering losses to 1.05.

The Euro remained under pressure during the week amid on-going concerns surrounding French fiscal policy while the dollar maintained a firm tone. In this environment, EUR/USD dipped to 16-month lows below 1.12 before a slight recovery.

Following recent comments from Fed officials, markets are now not backing a further rate hike at the October meeting. Traders, however, are pricing in close to a 90% chance that rates will be increased in December with over a 10% chance of a 50 basis-point hike.

The 10-year US bond yield also jumped to highs above 5.30% before correcting slightly with fragile risk appetite.

ING commented on the short-term outlook; With global bonds and risk sentiment still looking fragile, and a hawkish Fed narrative keeping markets convinced of a December hike, we retain a preference for a slightly stronger dollar in the near term.”

According to UBS, selling is overdone; “While we acknowledge the US growth advantage, we believe markets have become overly pessimistic on Europe. European data have remained more resilient than expected despite geopolitical tensions and higher energy prices. As a result, EUR/USD now appears weaker than relative economic fundamentals would suggest.”

There was renewed selling in French bonds with a global sell-off amplified by underlying concerns surrounding a lack of domestic discipline.

Longer-term French fiscal trends will be important. National Rally leader Le Pen proposed fiscal tightening if the party wins power next year, but sentiment remains very fragile.

MUFG commented; “Our baseline forecast assumes a "muddle-through" scenario. Under this scenario, the French government is able to pass next year's budget, including fiscal tightening measures that help restore investor confidence in French government debt ahead of the presidential election in April next year.”

It added; “At the same time, growth in France remains subdued, reflecting the combined impact of higher interest rates, fiscal tightening and ongoing political uncertainty.”

According to Credit Agricole; “should anti-establishment parties to the right or left of the
French political spectrum end up controlling both the presidency and the legislature and are able to exercise fiscal restraint, our simulation results point at EUR/USD trading between 1.12 and 1.14.”

It added; “The most EUR-negative outcomes involve a hung parliament accompanied by either policy paralysis or runaway fiscal deficit. We see EUR/USD falling towards 1.05 under these outcomes.”

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TAGS: Euro Dollar Forecasts