French Unrest Combined with Russia-Ukraine Tensions Sends Euro to 17-Month Low
nashnova research
The euro slid to 1.1183 against the dollar, near a 17-month low and the worst G10 performer over the past month — a collapsing Russia-Ukraine ceasefire and violent French street protests struck Europe's two weakest nerves at once: energy prices and fiscal credibility.
What went wrong with the Russia-Ukraine ceasefire?
Zelensky accused Trump on October 18 of "taking steps to convince Ukraine to surrender," and proposed a new deal: Ukraine stops striking Russian refineries in exchange for more Patriot air-defense missiles.
Trump declared a unilateral energy ceasefire on October 11 and waived expected Russian energy sanctions on October 17 — yet Zelensky noted Russia has attacked Ukrainian energy infrastructure 76 times since the ceasefire announcement.
This means → the ceasefire exists on paper only; Europe's energy supply chain is still under fire. Diesel and natural gas prices feed directly into eurozone inflation, which in turn decides how much room the ECB has to cut rates.
Why did French streets spiral out of control?
France erupted in "cost-of-living" protests on October 17. The Interior Ministry counted roughly 550,000 participants (unions said 800,000); 2,397 arrests nationwide, 997 police and gendarmes injured, with 855 detained in Paris alone — a record.
Damage was severe: in Limoges, an 1883 city hall was torched and its roof collapsed; Marseille's city hall was breached; over a dozen Paris metro lines shut down.
In plain terms = protesters are not just angry about prices — they are angry about government spending cuts. But the government needs those cuts to control debt. Caught between the two, the FX market sold euros first.
How bad is France's debt problem?
French public debt stands at €3.60 trillion, or 119.0% of GDP. The government's 2027 budget plan targets roughly €43 billion in savings to trim the deficit from 5.4% to 5.0% — but it must pass through a fractured National Assembly.
The 10-year French government bond yield hit 4.79% on October 16 and briefly approached 5% earlier this month — the highest since 2002. The France-Germany spread widened to roughly 150–160 basis points in early October, the widest since the 2011–12 eurozone debt crisis.
Moody's rates France Aa3 with a negative outlook and will review on October 23. This reflects a rating agency already weighing the case for a downgrade.
Two ECB governors drew a red line: Banque de France Governor Villeroy de Galhau said "the solution lies at home"; Bundesbank President Nagel stressed that ECB bond-market tools target price stability, "not certain spread levels." In plain terms = the ECB told France: your spread problem is not our problem.
How are high energy costs dragging the euro down?
Eurozone harmonized CPI rose to 3.8% year-on-year in September (August: 3.2%), a three-year high. Energy inflation jumped from 14.3% to 18.8%.
Dutch TTF natural gas — Europe's benchmark gas price — traded around €73/MWh in the week of October 7, up roughly 120% year-on-year. EU gas storage fell to 71.5% on October 2, versus 82.6% a year earlier — a noticeably thinner winter buffer.
This means → the ECB faces inflation at 3.8% — well above target — alongside a growth forecast of just 0.9%. It cannot hike further without crushing growth, yet cannot cut without risking runaway inflation. That deadlock is the macro backdrop in which the euro finds support hardest to come by.
Will the euro keep falling?
Commonwealth Bank of Australia strategist Carol Kong expects the market to keep pricing in a risk premium: the euro may test 1.1130 support this week. ING strategist Francesco Pesole sees room to test 1.110 or even 1.100; Danske Bank's 12-month target sits at 1.12.
BBVA's head of global markets strategy Ana Munera described the ECB's position as "a clear dilemma" — fighting inflation on one side, avoiding sovereign-debt stress on the other.
Yet CFTC data show speculative euro net shorts reached 137,573 contracts on October 13, at the 0th percentile of the 158-week range — extreme crowding. This means → the short position itself is short-covering fuel; any easing in geopolitical headlines could trigger a technical bounce.
Whether the euro stabilizes ultimately hinges on two things: whether the geopolitical backdrop keeps deteriorating, and the outcome of Moody's October 23 rating review.
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