Economic data from the Eurozone gave mixed signals. The Sentix survey showed that investor confidence weakened further, partly because of the negative impact of U.S. tariffs. German industrial production rose as expected, but a softer trade surplus limited optimism. For now, the Euro remains stable, even climbing to 1.1780 on Tuesday, its strongest level against the Dollar since July. However, the currency lost some ground against the British Pound, with GBP/EUR reaching 1.1526.

Analysts argue that markets are showing faith in Macron’s ability to act fast. Economist Holger Schmieding from Berenberg said the next prime minister may build bridges with the center-left, allowing compromises with the Socialists. Investors expect France to continue with slow growth, modest fiscal adjustments, and possible changes to Macron’s pension reform. However, confidence is fragile, and any delay in forming a new government could weigh on both business sentiment and the Euro.

The risk of policy paralysis is real. Marine Le Pen’s National Rally and Jean-Luc Mélenchon’s France Unbowed have both vowed to reject any centrist-led replacement. Pressure is building for new elections, while unions and protesters are preparing to escalate their actions. France’s fiscal challenges add another layer of concern, with a budget deficit near 6% of GDP in 2024 and public debt standing at 113% of GDP. Bayrou’s failed attempt to push through €44 billion in savings and tax increases only deepened doubts about France’s ability to stabilize its finances.

Despite these risks, the Euro has been surprisingly resilient. This suggests markets believe France’s troubles will not derail the single currency in the near term. Yet analysts warn this confidence may be misplaced. If Macron fails to form a new government quickly, or if opposition parties refuse to cooperate, the Euro could come under stronger pressure.

For investors and traders, the Euro’s current strength may offer an opportunity to position cautiously. Short-term gains against the Dollar could continue if the Fed delivers aggressive rate cuts, but political turmoil in France presents medium-term downside risk. A balanced strategy might involve looking for buying opportunities in EURUSD on dips while also considering hedges against potential weakness if France’s political crisis deepens.