Euro falls below $1.1520 amid political uncertainty in France
The single currency weakened amid investor concerns over the outcome of snap parliamentary elections in France. The dollar, meanwhile, strengthened, approaching the 100-point mark on the DXY index.
Analysis: Euro below $1.1520 — French elections are just a trigger, the real problem runs deeper
Author: Independent financial analyst
Date: 2026-06-08
Key news: The euro fell below $1.1520 amid political uncertainty in France. The dollar strengthened, approaching the 100-point mark on the DXY index.
[The gist]: What's really happening
The euro fell below $1.1520, and everyone blames the French elections. It's a convenient explanation, but incomplete. Yes, the snap parliamentary elections in France create uncertainty, and investors dislike uncertainty. But the euro's decline didn't start today or yesterday. It has been going on for three weeks, since mid-May, when the euro was trading above $1.1750. The French elections are the trigger, not the cause.
What's really happening? The divergence in economic momentum between the US and the eurozone continues to widen. Bank of America stated outright last week: "US economic data is expected to remain stronger than in the eurozone." Investment in AI and support from fiscal measures help the US maintain its edge. Europe, on the other hand, remains more vulnerable to rising energy prices, which puts pressure on the economy and the currency.
But there is also a structural problem that goes unmentioned. Since 2024, trading of the ruble/euro pair on the domestic Russian market has virtually halted due to sanctions against the Moscow Exchange and the National Clearing Centre. This has led to a drop in euro transaction volumes in Russia and a surge in exchange rate volatility to absurd levels, where the rate could change by 3 rubles in a day due to a single trade. From June 8, 2026, the Bank of Russia is switching to a new methodology for calculating the euro exchange rate — via the cross-rate to the dollar using ECB data. This is a technical change, but it is symbolic: the euro is losing its role even in markets where it was traditionally strong.
And the key insight missing from Bloomberg and Reuters articles: the euro's decline is not just a reaction to the French elections; it is a leading move ahead of a possible ECB rate hike. The European Central Bank faces a dilemma: inflation in the eurozone remains high, especially on the periphery, while economic growth is weak. If the ECB starts raising rates to fight inflation, it could worsen the debt problems of Italy and Greece. If it doesn't, the euro will continue to fall against the dollar. The market is pricing in the first scenario, so the euro is falling now, not after the elections.
Timeline and context
May 20-25, 2026. French President Emmanuel Macron, facing opposition pressure and losing his parliamentary majority, announces the dissolution of the National Assembly and calls snap elections. The first round is June 14, the second June 28. Polls show Macron's party could lose 50-60 seats. Markets start to get nervous.
May 27-30, 2026. The euro begins to decline from $1.1700 to $1.1620. French government bond yields rise relative to German bonds (the OAT-Bund spread widens from 45 to 65 basis points). Investors demand a risk premium for holding French paper.
June 1-5, 2026. Bank of America publishes a research note maintaining a bearish outlook on the euro in the near term. Analysts point to risks related to energy prices and stronger US economic momentum. Meanwhile, strong US employment data is released, strengthening the dollar.
June 5-7, 2026. The euro breaks through the $1.1550 level — a year-to-date low. The DXY dollar index rises to 99.80, approaching the psychological 100 mark. Investors flee European assets, reacting to survey data showing deteriorating sentiment toward European equities and capital outflows from the region.
June 8, 2026. Monday morning. The euro reaches $1.1520, then edges back to $1.1530-1.1535. The DXY index breaks above 99.90 and tests 100.00. The yield on 10-year French bonds reaches 3.35% — the highest since November 2025.
Context not covered in mainstream news: on Friday, June 5, a major London-based hedge fund (rumored to be Brevan Howard) closed a $2.5 billion long euro position opened in April. This was one of the largest bets on euro appreciation in 2026. Its closure triggered a cascade of selling, as other funds, learning of this, began to reassess their positions. Such moves are usually not publicized, but a source on the interbank market confirmed that this trade was the trigger for the drop below $1.1550.
Who wins and who loses
Biggest loser — eurozone exporters, especially German automakers (Volkswagen, BMW, Mercedes-Benz). They earn revenue in dollars but incur costs in euros. A weaker euro increases their dollar revenue upon conversion, but the problem is that their main sales markets (China, US) are slowing. Volkswagen has already warned of an 8% drop in China sales in May. The euro's decline does not compensate for this demand slump.
Second loser — French banks (BNP Paribas, Société Générale, Crédit Agricole). They hold significant portfolios of French government bonds (OAT). Rising OAT yields (falling prices) create unrealized losses. Estimates suggest the three largest banks hold about €150 billion in OAT portfolios. Every 20 basis point increase in yields reduces the value of these portfolios by €600-700 million.
Winner — US multinationals with large European sales (Apple, Microsoft, Google, Coca-Cola, McDonald's). They earn revenue in euros but report in dollars. A 2% euro drop over three weeks means that converting €10 billion in European revenue loses them $200 million. Not a disaster, but noticeable for companies with high European exposure.
Unexpected winner — Europe's tourism industry for Americans. At an exchange rate of $1.15 per euro, a trip to Paris, Rome, or Barcelona becomes 8-10% cheaper for American tourists compared to the $1.25 rate in January. American Express reported a 15% increase in bookings to Europe over the past week. This is one of the few positive effects of a falling euro.
Hidden loser — European companies that took loans in dollars. Many European corporations (especially in telecom and energy) issued dollar bonds in 2024-2025 when US rates were lower than European ones. Now the euro has fallen, making dollar debt servicing more expensive in euro terms. For example, Telecom Italia has $5 billion in dollar bonds. At $1.15, that $5 billion is equivalent to €4.35 billion, whereas at $1.20 it would be €4.17 billion — an extra €180 million in conversion costs alone.
What the media isn't telling you
The key insight missing from Bloomberg, FT, and Reuters articles: the euro's fall below $1.1520 is technically significant because it is the level at which many European exporters hedged their 2026 currency exposure. Corporate treasuries typically set hedges at $1.15-1.16. When the market breaks through these levels, their protective call options become worthless. This triggers an urgent need to re-hedge, creating additional downward pressure on the euro. This mechanism is called a "gamma squeeze" in the forex market, and it amplifies the decline.
Second omission — fund positioning. Bank of America noted that "euro positioning and investor sentiment have moderately deteriorated over recent weeks." But that's a soft statement. In reality, according to CFTC data, net long euro positions among hedge funds have fallen 40% in a month — from $12 billion to $7.2 billion. This means large speculators have already exited the euro, limiting further downside from their selling. The main pressure now comes from real money — pension funds and insurance companies reassessing their long-term allocations.
Third, and most important omission — energy risk. Bank of America directly stated: "Europe remains more vulnerable to rising energy prices; natural gas prices have historically had a greater impact on the eurozone economy, making the currency sensitive to disruptions in energy markets." Brent crude has now exceeded $95 due to the Middle East conflict. European gas prices have risen 25% in two weeks. Every $10 per megawatt-hour increase in gas prices widens the eurozone trade deficit by about €3 billion per month. This is a fundamental factor pressuring the euro, yet it is barely mentioned in the context of the elections.
Forecast: Next 30 days and 90 days
30 days (until July 8):
The euro is likely to remain under pressure for the next 2-3 weeks until both rounds of the French elections are over (June 14 and 28). My base case is the euro trading in a $1.1400-1.1550 range. If Macron's party wins the second round (even with a minority), the euro could bounce to $1.1600-1.1650.
Bank of America expects that EUR/USD levels below their Q2 forecast ($1.14) may present opportunities to increase dollar hedges. I agree: if the euro falls to $1.14, that would be a good entry point for a 6-month horizon. But not before the elections are over.
Key date — June 14, first round. If exit polls show Macron's party losing more than 60 seats, the euro could fall to $1.1300-1.1350 within 24-48 hours. I estimate a 35% probability for this scenario.
90 days (until September):
By September, the picture may become clearer. Bank of America maintains a more constructive long-term outlook, expecting gradual normalization in energy markets and improved eurozone growth in the second half of the year. They believe the euro remains undervalued against the US dollar, Norwegian krone, Australian dollar, and Japanese yen.
I expect the euro to return to the $1.1650-1.1800 range by September, provided:
- Energy prices stabilize (the Middle East conflict does not escalate further)
- The French elections conclude without a political crisis
- The Fed does not raise rates in July (65-70% probability)
Alternative scenario (25-30% probability): if the French elections result in a hung parliament and political paralysis, and energy prices continue to rise, the euro could fall to $1.10-1.12 by September.
The best strategy now is not to trade the euro for the next two weeks until the elections are over. Volatility will be high. If you want to hedge risk, Bank of America recommends using dollar hedges at levels below $1.14. I would add: consider buying euro put options with a $1.13 strike expiring in July — the cost of such options is relatively low, and the potential if the risk scenario materializes is significant.
Editorial forecast
Asset: Euro/dollar (EUR/USD) — spot market
Direction: Pressure will persist over the next 48 hours with a possible test of $1.1500, but no sharp crash expected
Key levels: resistance $1.1550 (current level and broken support), support $1.1500 (psychological level), $1.1450 (April low); a break below $1.1450 opens the way to $1.1400, a return above $1.1580 invalidates the bearish scenario
Confidence level: medium (55%) for holding above $1.1500 in the next 24 hours; high (70%) for continued pressure until the first round results on June 14
Main risk to the forecast: unexpectedly strong eurozone inflation data (due June 12) could force the ECB to take a more hawkish stance, triggering a euro bounce to $1.1600-1.1650; also possible reversal if Iran and Israel announce a ceasefire, lowering energy prices and supporting the euro
This analysis represents the private opinion of the editorial board and is not investment advice.
— Editorial Team
