(News Bulletin 247) – The single currency is falling sharply against the dollar, due to political uncertainty in France. The Barnier government, which has just activated article 49.3 of the Constitution for the adoption of the Social Security budget, is now exposed to a motion of censure.

The euro is sinking on Monday, weighed down by the prospect of a fall of the French government, targeted by possible censorship after the Prime Minister took responsibility for the criticized Social Security budget.

The European currency is down 0.6% against the greenback, at 1.0470 dollars, and loses 0.21% against the British currency, at 82.87 pence per euro.

Prime Minister Michel Barnier triggered article 49.3 on Monday to have the Social Security financing bill (PLFSS) adopted without a vote, leading to the announced filing of a motion of censure by the France Insoumise party.

The president of the National Rally (RN) group in the Assembly Marine Le Pen indicated that he would table his own motion of censure, and that his deputies would vote on all the motions, including that of the left.

Michel Barnier had acceded on Monday to one of the RN’s requests on the PLFSS, by committing that there would be no delisting of medicines in 2025, but the far-right party wanted him to renounce also to the deindexation of pensions.

If the government collapses, “this could lead to budget cuts and other austerity measures that could hurt economic growth,” says XTB’s Kathleen Brooks.

Furthermore, if the RN comes to power following a new election, the analyst doubts that it will be able to reduce the French public deficit, currently above 6% of GDP.

“After the hope aroused by concessions from the Prime Minister on certain measures carried out by the National Rally, it appears that these efforts are not enough. The RN confirmed its intention to vote on the motion of censure tabled in reaction to the use of 49.3 by “If investors had initially welcomed the government’s concessions, they are now worried about the political strategy of the RN, which is fueling an escalation in political instability in France”, note the strategists at Sax Bank.

Tensions on the bond market

On the bond market, the gap between the yield of the 10-year French debt security and that of the same maturity of Germany, a barometer of investor confidence, is currently widening to more than 87 basis points (0, 87 percentage point).

“This instability has repercussions on the financial markets: rates, which were falling, are rising again to reach 2.91% (+0.70%). The spread with Germany widens to more than 87 basis points, erasing the previous lull Investors are punishing the lack of vision and growing uncertainty, while the objective remains to reduce the public deficit to 5% by 2025. This objective will be a key indicator. to regain their confidence in French finances”, they continue.

A greenback in good shape

The dollar also gained 0.85% against the British currency, to 1.2627 dollars per pound, supported by recent statements by Donald Trump on his Truth Social network.

The president-elect on Saturday threatened to impose “100%” tariffs on the nine BRICS countries, including Brazil, Russia, India, China and South Africa, which are considering creating their own common currency to do without the dollar, currently the reference currency for world trade.

“This means that from today the dominance of the dollar is no longer voluntary, but imposed by the United States,” said Ulrich Leuchtmann, analyst at Commerzbank.

Last week, Donald Trump had already said he wanted to impose customs duties of 25% on products imported from Mexico and Canada.

Another factor in the dollar’s rise, manufacturing activity in the United States deteriorated again in November, but less than expected, and the outlook is improving for American companies after the uncertainties of the presidential election. .

(With AFP)