Euro slipping against the Dollar and the Pound

Daily Market View | 

By David Stritch, Senior Multicurrency Analyst, Caxton | 7 October 2026

Why is the euro falling against the pound and the dollar?

The euro has slipped to fresh lows this week because France's budget crisis is getting worse. Protests are spreading and there is still no agreed plan to cut a deficit running at close to 6% of GDP. A firmer US dollar, helped by escalating attacks on Gulf shipping, is adding to the pressure. EUR/USD is down 1.2% in five days.

Key takeaways

• The euro is trading at its weakest level against the pound since June 2025, and is at a similar low against the dollar.
• France still has no workable route to reducing its deficit. National Rally's budget proposal targets a sharp cut, but it faces stiff political resistance.
• Talk of European Central Bank (ECB) support for French debt is growing, but any intervention would come with conditions.
• A stronger dollar means EUR/USD may not have hit its floor yet.

What happened to the euro this week?

The euro fell against almost every major currency as France's political deadlock deepened. At 7:30am this morning, EUR/USD opened at 1.1259. That is down 0.62% on the day, 1.24% on the week, and 4.73% since the start of the year.

GBP/EUR opened at 1.1791. The pound has gained roughly 1% against the euro over the past five sessions and around 3% year to date. [CHECK: your notes say GBP/EUR is up 1.75% in a week; see note below.]

That is bad news for France and good news for anyone who needs to buy euros, whether they are paying European suppliers or buying property abroad.

Why does France's budget matter so much for the euro?

France is the eurozone's second-largest economy. When investors doubt its ability to manage its debt, the doubt spreads to the euro as a whole.

France's deficit is close to double the EU's 3% limit, and successive governments have failed to pass a credible plan to bring it down. Marine Le Pen's National Rally has now put forward a budget that would cut welfare spending. The party's own projections bring the deficit back inside the EU limit by around 2028.

From a market perspective, a plan that tackles the deficit head-on is exactly what bond investors want to see. The problem is getting it through. Spending cuts of that size were always going to be a hard sell in French politics. The spreading protests show how wide the gap is between what the numbers require and what voters will accept.

Could the European Central Bank step in?

It is possible, but it would not be straightforward. ECB intervention has moved onto the agenda after Marine Le Pen called for it yesterday. [CHECK: confirm the date and wording of Le Pen's comments.]

The ECB's main tool here is the Transmission Protection Instrument (TPI). It allows the bank to buy a member state's government bonds if that country's borrowing costs rise in a "disorderly" way. The catch is that the country must be broadly complying with EU fiscal rules. A France with no agreed budget makes that case harder to argue.

For the euro, ECB support would likely ease the immediate pressure on French debt. It would not fix the underlying problem, which is political, not technical.

Why is the dollar adding to the pressure?

The dollar is gaining as a safe haven. Reports that Iran has stepped up attacks on Gulf shipping have pushed investors back towards the US currency. [CHECK: confirm the latest reports on Gulf shipping.] GBP/USD is also lower, down 0.29% on the day at 1.3276, so this is broad dollar strength and not only euro weakness.

When the euro is already under pressure at home and the dollar is attracting safe-haven demand at the same time, EUR/USD is caught on both sides. That is why the worst may still be ahead for this pair.

What is the market watching next?

Three things matter most in the coming days:

• French politics: whether any budget can win a parliamentary majority, and whether the protests grow.
• The ECB: any signal from policymakers about their willingness to support French bonds.
• The Gulf: further escalation would likely support the dollar and push oil prices higher, which hurts the energy-importing eurozone.

What does this mean for businesses and individuals with euro exposure?

It depends on which side of the trade you are on.

• Buying euros, for example to pay EU suppliers, fund a property purchase or cover payroll in Europe: current levels are the strongest the pound has seen against the euro in more than a year. Some buyers may want to fix part of their requirement with a forward contract, which locks in today's rate for a payment due later.
• Receiving euros, such as UK exporters selling into Europe or individuals with euro income: a weaker euro reduces what that revenue is worth in pounds. Rate alerts and phased conversions can help you avoid converting everything at one moment.
• Dollar exposure: EUR/USD is under the most pressure, so businesses paying or receiving in dollars from a euro base should review how much risk they are carrying.

David's view

My read is that the euro's problems are only partly about France's numbers. They are mostly about France's politics. National Rally has set out a credible-looking route to a lower deficit. The market's concern is that no route, from any party, currently has the votes or the public support to get through. Until that changes, rays of sunshine for the euro will be scarce. A quick resolution looks less likely with each passing day. With the dollar also firming, EUR/USD looks the most exposed pair on the board.

Markets Today

Please be aware the rates below are the market rate at 7:30am. Contact your Caxton dealer or check online for a live quote.

FAQ

Why is the euro weak right now?
France's unresolved budget crisis is weighing on confidence in the eurozone. A stronger US dollar is adding to the pressure. Investors are wary of holding euros until there is a credible plan to cut France's deficit.

Is now a good time to buy euros with pounds?
The pound is at its strongest against the euro since June 2025, which favours euro buyers. Rates can move quickly in either direction, though. Many businesses manage that risk by fixing part of a future payment with a forward contract instead of trying to time the market.

What is the ECB's Transmission Protection Instrument?
It is a tool that lets the ECB buy a eurozone country's government bonds if its borrowing costs rise in a disorderly way. Its use depends on the country broadly following EU fiscal rules.

How does conflict in the Gulf affect exchange rates?
Escalation tends to push investors towards the US dollar as a safe haven. It also raises oil prices, which weighs on energy-importing economies such as the eurozone.

What is National Rally's budget plan?
The party has proposed cutting welfare spending to bring France's deficit back within the EU's 3% limit by around 2028. Whether it can win enough political support remains the key question.

If you have euro or dollar payments coming up, this is a good moment to review your currency risk. Speak to Caxton's multicurrency dealers about forward contracts, rate alerts and other ways to protect the value of your international payments.

This article is for information only and does not constitute financial advice. Exchange rates can move quickly and past performance is not a guide to future performance.