06:16 AM EDT, 08/26/2025 (MT Newswires) -- Hitting EUR/USD late on Monday was the surprise announcement from French Prime Minister Francois Bayrou that he was calling a vote of confidence in his government's fiscal austerity plans on Sept. 8, said ING.

The numbers don't look good in that his centrist party has 210 seats in parliament, while the far left and the far right have a combined 330 seats and have already said they will vote no, wrote the bank in a note.

French government bonds had already been underperforming in an otherwise benign environment for European government debt this summer, stated ING. The bank will all be waiting for headlines on Tuesday to see whether French 10-year yields start trading through Italy.

The broader question for the euro (EUR) is whether recent French news destabilizes appetite for the euro more broadly, or whether this is an isolated French issue, pointed out the bank. Given the 'push' factors away from the US dollar (USD) at the moment -- pressure on the Federal Reserve and the macro justification to cut rates -- ING isn't ready to go all out bearish on EUR/USD over this.

However, cross rates like EUR/JPY and EUR/CHF can start to come under some pressure as the currency regime shifts away from the low-volatility, benign conditions seen through August.

Perhaps the largest threat to the euro at present is positioning, added the bank. Futures data shows both the asset management and leveraged fund communities running large net long positions. It expects a pick up in protective EUR/USD downside positions in the currency options market.

Depending on how hard French bonds get hit on Tuesday, a break of support at 1.1580/90 could see follow-through to the 1.1500/1520 area -- especially since investors probably added to EUR/USD longs on Friday's dovish tilt from Federal Reserve Chair Jerome Powell.

EUR/GBP looks to stay offered this week as French politics prompts some reassessment of long euro exposure, noted ING. This comes at a time when a credibly hawkish Bank of England is already providing sterling with some support. Following this month's hawkish turn by the BoE, markets struggle to price one 25bps cut this year (just 12bps currently priced) and barely two cuts by next summer.

There doesn't look too much on the agenda to knock the BoE's hawkish agenda this week, which suggests EUR/GBP will be pressing support at 0.8600 shortly, according to the bank.

The Central and Eastern European (CEE) market continues to discount positive expectations regarding the Russian conflict in Ukraine, said the bank. Monday, the stronger US dollar also had a negative impact on the region.

At the same time, ING sees that local rates are losing momentum with core markets, and spreads are tightening across the board. After Monday's muted activity due to closed London markets, CEE rates will have a chance to catch up with the move in core markets, but the combination of all the factors mentioned seems unfavorable for CEE currencies.

In addition, ING has seen strong long positioning, especially in the Hungarian forint (HUF) and somewhat in the Polish zloty (PLN), which still has the potential for some unwind, leaving foreign exchange exposed here.