EUR/USD edges higher as US Dollar weakens, France confidence vote looms

• EUR/USD hovers near its strongest level since late July, around 1.1750.
• France's Bayrou faces a crucial confidence vote today, with defeat widely expected and political risk weighing on the Euro.
• ECB is set to hold rates at 2.00% on Thursday, with Lagarde's guidance in focus.

The Euro (EUR) edges higher against the US Dollar (USD) on Monday, with EUR/USD hovering near its strongest level since late July. At the time of writing, the pair is trading around 1.175 as the Greenback remains under broad pressure following last week's dismal Nonfarm Payrolls (NFP) report and firm expectations that the Federal Reserve (Fed) will lower interest rates in its September 16-17 monetary policy meeting.

Despite the Greenback's weakness, the Euro is struggling to extend gains as political uncertainty in France clouds sentiment. Prime Minister François Bayrou faces a critical vote of confidence later today, scheduled around 17:00 GMT after a debate that began earlier in the day. Ahead of the vote, Bayrou delivered a forceful address to the National Assembly, framing the showdown as a "historical question" for France. He warned that if debt is not addressed, the country may eventually lose the ability to borrow altogether, with public debt already near 114% of GDP and the deficit far above EU limits. His proposed €44 billion austerity package for 2026 includes controversial measures such as eliminating public holidays and freezing pensions and benefits.

Despite Bayrou's appeal, opposition parties have already pledged to vote against him. Socialist leader Boris Vallaud said his party cannot support the prime minister, blaming France's strained finances on President Emmanuel Macron's policies. With both the far-left and far-right also lined up in opposition, Bayrou's defeat looks almost inevitable, heightening the risk of renewed political instability in the Eurozone's second-largest economy.

Looking beyond France, investors are focused on Thursday's European Central Bank (ECB) policy meeting. The ECB is widely expected to leave interest rates unchanged at 2.00%, maintaining its pause after a year-long easing cycle. With inflation edging up to 2.1% and growth showing modest resilience, policymakers see little urgency for further cuts. Board members, including Isabel Schnabel, have stressed caution, warning of lingering upside risks from tariffs, food costs, and global trade disruptions. Markets will closely watch President Christine Lagarde's press conference for clues on whether additional easing remains possible later this year.

On the US side, the Greenback remains under pressure, with the US Dollar Index (DXY) trading around 97.50, close to the lower end of its August range. Friday's NFP report confirmed the labor market is losing momentum, with unemployment rising to 4.3%, the highest since late 2021. The weak data reinforced expectations of imminent Fed easing. According to the CME FedWatch Tool, markets are pricing a near-certain 25 basis point cut later this month, with around a 10% chance of a larger 50 bps move. Traders are now looking to this week's inflation releases, the Producer Price Index (PPI) on Wednesday and the Consumer Price Index (CPI) on Thursday, as key risk events that could shape the size of the Fed's cut and the path of easing into year-end.