Euro falls to six-week low on French turmoil

The euro extended its losses toward the $1.16 mark, hitting its weakest level since August 27, as mounting political turmoil in France and a series of disappointing economic releases from Germany rattled investor confidence across the euro area. The renewed sell-off highlights growing skepticism about the region’s near-term economic resilience and the European Central Bank’s ability to navigate mounting headwinds without triggering a deeper slowdown.

In France, President Emmanuel Macron is under escalating pressure to either call early elections or resign, following Prime Minister Sébastien Lecornu’s abrupt resignation on Monday. The move has thrown the government into disarray, with several former allies now joining opposition leaders in calling for a political reset to restore stability.

The ongoing unrest has weighed heavily on French bonds and equities, as investors grow increasingly concerned about policy paralysis in the eurozone’s second-largest economy.

Meanwhile, in Germany, the bloc’s economic engine, industrial production plunged 4.3% month-over-month in August, marking the steepest decline since March 2022 and far exceeding forecasts for a modest 1% drop. The downturn was driven primarily by a sharp contraction in automobile manufacturing, compounded by weaker global demand, rising input costs, and lingering supply chain disruptions.

The dismal data follows a series of soft readings in factory orders and exports, reinforcing fears that Europe’s largest economy could slip back into recession territory before year-end.

Amid these challenges, market participants have scaled back expectations for near-term monetary tightening by the European Central Bank, with some analysts now speculating that policymakers may be forced to adopt a more dovish stance to support growth.

The widening divergence between European and U.S. economic trajectories has further pressured the common currency, which could face additional downside risk if political uncertainty in France continues to escalate or if incoming eurozone data fail to show signs of stabilization.