EUR/GBP weakens as French political turmoil and ECB caution weigh on Euro

• The Euro drops below 0.8690 support against the British Pound after the unexpected resignation of French Prime Minister Sébastien Lecornu.
• Political uncertainty in France and the risk of snap elections increase pressure on the European currency.
• Cautious comments from European Central Bank Chief Economist Philip Lane limit the outlook for monetary tightening.

The EUR/GBP cross weakens significantly on Monday, falling to 0.8674, its lowest level in two weeks. The move follows the unexpected announcement that French Prime Minister Sébastien Lecornu has resigned, confirmed by the Élysée just hours after the new government was formed. Lecornu becomes the fifth head of government appointed by French President Emmanuel Macron since the start of his second term, highlighting rising political instability.

This resignation plunges France into a new phase of uncertainty at a time when the country is already facing a serious fiscal crisis and persistent social tensions. The prospect of early parliamentary elections fuels investor caution, as markets fear a surge of populist parties that could further complicate economic governance within the Eurozone. The situation weighs heavily on the Euro (EUR), which declines against most major currencies.

On the macroeconomic front, the latest European data offer little support to the single currency. Eurozone Retail Sales rose by just 0.1% in August on a monthly basis, following a revised 0.4% contraction in July, while the annual rate slowed to 1% from 2.1% previously. Meanwhile, the Sentix Investor Confidence Index improved to -5.4 in October, its highest level in more than a year, but remains in negative territory, signaling fragile sentiment.

In this context, remarks by European Central Bank (ECB) Chief Economist Philip Lane in Frankfurt on Monday reinforced a cautious stance. Lane noted that any increase in downside risks could justify a slight reduction in policy rates to protect the medium-term inflation target. His comments strengthen expectations that the ECB will maintain its wait-and-see approach, while France's political turmoil further undermines confidence in the Euro.

EUR/GBP technical analysis: Euro under pressure below 0.8690

EUR/GBP 4-hour chart. Source: FXStreet.

The EUR/GBP cross falls on Monday below the October 1 low of 0.8690, reaching a new two-week low of 0.8674. As the pair stabilizes, the previous low at 0.8690 now offers immediate resistance.

A break above 0.8690 remains necessary to envisage a rebound, with the 100-period Simple Moving Average (SMA) on the 4-hour chart offering potential resistance at 0.8707, before a downtrend line since late September towards 0.8730.

On the downside, a move below the intraday low at 0.8674 could reignite bearish pressure and put an uptrend line since mid-August towards 0.8650 in sight.