EUR: Every day brings French risk - Commerzbank

France's short-lived prime minister, Sebastian Lecornu, resigned unexpectedly yesterday morning. His time in office was even shorter than that of Liz Truss, the former British Prime Minister, who was forced to resign after seven weeks due to her ill-fated financial plan for Britain. Lecornu stumbled over Sunday's cabinet announcements, despite it already being unclear before that how long he would last. With each failed prime minister, the question naturally arises as to how governable France still is, Commerzbank's FX analyst Michael Pfister notes.

Euro appears to be affected by the events in France

"And the euro? As we have often emphasised, the euro hardly reacts to problems in France as long as German government bonds remain available as a euro-denominated safe haven. Nevertheless, EUR/USD fell by around half a cent yesterday following the resignation announcement. As is often the case, it is helpful to break down the performance into idiosyncratic factors by visualising the performance of the individual currency against the G10 average."

"It is striking that approximately half of the movement (around 9:30 German time) was triggered by euro weakness, while the other half was triggered by a stronger US dollar. The euro appears to have been affected by the events in France, while there was also a weak flight to other safe havens, as evidenced by the performance of the USD and JPY. However, it should be noted that intraday data was used for the visualisation."

"Although these movements occurred, they were short-lived, with EUR/USD closing only slightly lower at the end of the day than at the start. Additionally, compared to the yen's movement at the start of the Japanese trading day, the EUR/USD movement was not particularly significant. Despite the turmoil in France, the risks associated with the imminent appointment of a new Japanese prime minister were apparently more important for the foreign exchange market yesterday."