The EUR/USD pair extended its advance to around 1.1670 during Monday’s early European session, buoyed by a weaker US Dollar as investors fully priced in expectations of a Federal Reserve rate cut later this month. According to the CME FedWatch Tool, markets are assigning nearly a 100% probability that the Fed will lower rates by 25 basis points at its October 28–29 meeting, bringing the federal funds rate down to the 3.75%–4.00% range.

The greenback also remains under pressure amid the ongoing US federal government shutdown, which has now stretched into its 20th day — the third-longest funding lapse in modern history. The prolonged political stalemate in Washington continues to undermine confidence in the USD, giving the Euro room to strengthen.

However, the upside for the shared currency appears limited after S&P Global Ratings downgraded France’s sovereign credit rating to A+ from AA- over the weekend, citing rising budget uncertainty and growing fiscal imbalances. The downgrade marks the second time in just over a month that France has lost its AA- rating from a major agency, following similar moves by Fitch and DBRS.

The downgrade came amid heightened political tension in Paris, where Prime Minister Sébastien Lecornu narrowly survived two no-confidence votes last week. To maintain support, his government was forced to shelve President Emmanuel Macron’s controversial 2023 pension reform — a move that underscored the fragile political landscape.

These developments have raised concerns about France’s fiscal trajectory and could weigh on the broader Eurozone outlook, potentially capping further gains in the Euro against the Dollar.

Looking ahead, traders will closely monitor Germany’s September Producer Price Index (PPI) data due later on Monday for additional clues on inflation dynamics and potential implications for the European Central Bank’s policy stance.