The Zhitong Finance App learned that as the political situation in France continues to be turbulent, causing unease in the European bond market and dragging down the trend of the euro, hedge funds are increasing their bearish bets on the euro. According to the latest data, net short positions in the euro held by leveraged funds have risen to the highest level since March 2020, reflecting the deepening pessimism of speculative traders about the outlook for the euro.
According to data released by the US Commodity Futures Trading Commission (CFTC) on Friday and compiled by Bloomberg, leveraged traders held bearish bets on the euro for the week ending October 20 were about 11.8 billion euros (about 13.2 billion US dollars). Over the same period, net short positions on the euro increased by 1,305 contracts to 94,138 contracts, the highest level since March 2020.
As the euro's short positions continue to increase, France's fiscal and political risks are becoming the focus of attention in European financial markets.
Since this month, the French bond market has continued to be under pressure as French lawmakers are at an impasse over how to deal with the country's heavy debt burden. Meanwhile, protests over the cost of living have further heightened political tension, and some protesters clashed with police. The French government is preparing for further clashes that may occur this weekend. The uncertainty of the French situation not only heightens investors' concerns about the country's fiscal outlook, but also puts pressure on risk appetite across the European market.
In fact, speculators have maintained net short positions in the euro since February of this year, and recent turbulence in France's political and financial situation has further strengthened this trend. Markets are concerned that French political risks may drag down Europe's economic growth prospects, while increasing uncertainty about the ECB's future monetary policy path.
As economic growth comes under pressure, investors are reevaluating whether the ECB will raise interest rates further, and the extent of potential interest rate hikes. This has also raised market concerns that the Euro-US rate gap may widen further, putting pressure on the euro exchange rate.
If the ECB's room to raise interest rates is constrained by economic weakness while US interest rates remain at a relatively high level, the attractiveness of the euro's interest rate spread against the US dollar may weaken further. In terms of exchange rate performance, EUR/USD weakened again this week. Previously, the euro had ended five consecutive weeks of decline, but the recent political situation in France and uncertainty about the European economic outlook have brought the euro back under selling pressure. As of this Friday, EUR/USD recorded a weekly decline of around 0.4%.
Overall, France's political turmoil, fiscal risk, and uncertainty about the ECB's policy prospects are jointly suppressing the performance of the euro. As leveraged funds' net short bets on the euro rose to the highest level in more than six years, the market's cautious sentiment about the European economy and the trend of the euro became even more apparent.
In the future, whether progress can be made on France's fiscal issues, and how the ECB balances monetary policy between slowing economic growth and inflationary pressure, will be important factors affecting the euro's subsequent trend.