France’s confidence rebound is already running out of steam
The desk maintains a cautious outlook on the EUR/USD amid reported declines in consumer and business confidence in France, which signal a weakening economic backdrop. Evidence from recent surveys shows the business climate index dropped to 96 in September, alongside a persistently low consumer confidence level at 86, well below the long-term average. Per the full note , this economic fragility may position France as an underperformer within the eurozone, impacting the euro's strength against the dollar. Current consensus targets for EUR/USD remain around 1.1684 for December 2026, though individual forecasts present notable divergence.
What the desk is arguing
The desk frames the current economic landscape in France as a negative catalyst for the euro, particularly against the backdrop of declining consumer confidence. The reported dip in the overall business climate and low household sentiment suggest constrained domestic demand and subdued economic activity moving forward. This trend is corroborated by the deterioration in both retail and service sectors, reflecting a broader malaise across the French economy.
The statistics are stark: French consumer confidence remains 14 points lower than its historical average, while business sentiment is similarly depressed. The combination of easing confidence and rising borrowing costs is likely to dampen spending and investment. Per the full note , this situation creates a challenging environment as France’s economic outlook contrasts with the more optimistic assessments of some other eurozone countries.
Where it sits in our coverage
Currently, our consensus target for EUR/USD is 1.1684 for December 2026, with a range suggesting variations between 1.1200 and 1.2000. Specific firm targets include socgen at 1.1400, morganstanley at 1.2150, and rbc at 1.2000.
This view leans towards the lower bound of the consensus spectrum, presenting a cautious narrative compared to projections from firms expecting a stronger euro. Notably, the potential gap between the current spot at 1.1446 and the median target reflects underlying bearish sentiment on the currency based on prevailing domestic economic conditions.
How other firms see it
Many firms are aligned with a cautious outlook on the euro, particularly regarding its performance against the dollar. Firms like socgen and anz appear to be on the same page, focusing on the potential weakness in the euro area stemming from disappointing economic indicators. Conversely, firms like morganstanley maintain a more bullish stance, projecting higher targets for EUR/USD, as they believe market corrections could favor the EUR through speculative demand.
Given the pressures in the French economy, it's essential to watch not only the EUR/USD but also related pairs like GBP/EUR and indicators like the ECB rate path, which can exert further influence on how EUR/USD evolves in this context.
How firms align with this view
Key takeaways
- 01Consumer and business confidence in France is significantly low, hindering economic recovery.
- 02The overall business climate index fell to 96, indicating a shift towards a more pessimistic economic outlook.
- 03Current EUR/USD consensus targets show significant divergence across major firms.
- 04Rising borrowing costs are compounding the challenges faced by the French economy.
Market implications
Traders should pay close attention to the EUR/USD level around 1.1446 as a potential pivot point. A breach below this level may suggest more pronounced downside risk amid weak economic indicators from France. Moreover, shifts in ECB communication or policy adjustments could also drive currency fluctuations in the near term.
Risks to this view
A surprisingly robust recovery in French consumer sentiment or unexpected positive economic data could invalidate the current bearish outlook, potentially leading to a reversal in EUR/USD positioning. Additionally, any aggressive maneuver from the ECB to tighten monetary policy could support the euro against the dollar.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
Deutsche Bank | Neutral | 1.1668 |
BNP Paribas | Bearish | 1.1500 |
Articles France’s confidence rebound is already running out of steam Published 12:10 France Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download France's fragile economy faces a double hit as confidence fades and borrowing costs surge Charlotte de Montpellier The French economy is likely to continue underperforming the rest of the eurozone Confidence is fading across the economy The summer improvement in French confidence proved short-lived. In September, the overall business climate fell to 96, moving further below its long-term average, while employment sentiment weakened and consumer confidence remained exceptionally low. Together, these indicators point to subdued domestic demand, cautious hiring and little momentum heading into the autumn.
The sectoral breakdown confirms this broad loss of momentum. Retail and services reported softer demand and activity expectations, construction remained under pressure, and the wholesale trade outlook deteriorated amid elevated uncertainty. Industry was comparatively resilient, but weaker order books, rising inventories and more cautious recruitment plans suggest that it will not be strong enough to offset the slowdown across the rest of the economy.
This weakness on the business side is compounded by persistently low household confidence. The consumer confidence indicator remained at 86 in September, 14 points below its long-term average, while households’ assessment of past changes in living standards fell to -81, versus a historical average of -49. Expectations improved slightly but remained deeply depressed, and unemployment concerns were still unusually high.
Persistent economic and political uncertainty is therefore encouraging precautionary saving rather than stronger consumption. Taken together, the business and consumer surveys leave France’s outlook looking more depressed than that of many other European economies. This means that the French economy is likely to continue underperforming the rest of the eurozone over the near term.
The bond sell-off deepens the squeeze The sharp rise in French long-term rates adds a new headwind to an already weak outlook. After climbing by around 15 basis points on Wednesday, the 10-year OAT yield rose further this morning, briefly reaching 4.70%, its highest level since 2008. This is roughly half a percentage point above its level at the start of September and reflects both the broader sell-off in eurozone bonds and a growing risk premium on France’s fiscal and political outlook.
This increase will gradually feed into the public finances, which are already in a very difficult position. As discussed in our latest article on France’s fiscal outlook , the deficit is expected to reach 5.4% of GDP in 2026, after 5.1% in 2025, and could rise to 6.5% in 2027 without corrective measures. Higher yields will not affect the entire debt stock immediately, given its relatively long average maturity, but they will steadily raise the interest bill as debt is refinanced.
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