Euro: Fiscal risks point lower against US Dollar - MUFG

EUR/USD bias: bearish, but conditional. MUFG’s concern is that French budget uncertainty—against a backdrop of global bond-market risk aversion—is raising the risk premium attached to euro-area assets. Wider OAT–Bund spreads can weigh on the euro by signaling greater perceived fiscal and political risk; the proposed fiscal consolidation may also pose a growth concern if it proves difficult to pass or implement.

The note identifies 1.1340 as a key support level; a sustained break could strengthen the bearish case, with 1.10–1.12 cited as a possible downside range—not a certainty. Conversely, passage of a credible budget or narrowing French spreads could ease the pressure. The view also depends on the dollar side of the pair: US yields and Fed expectations could amplify or offset euro-specific weakness.

Traders should monitor French budget negotiations, OAT–Bund spreads, and US rates and dollar direction. The move is not one-way: stronger-than-expected euro-area PMIs were not enough to counter the fiscal concerns in the cited commentary, but subsequent growth or policy developments could change that balance.