French budget and election risks weigh heavily, euro posts worst monthly performance in over a year, hedge funds seize the momentum to add to short bets.

Title context: French budget and election risks weigh heavily, euro posts worst monthly performance in over a year, hedge funds seize the momentum to add to short bets. Text: As French political and fiscal risks intensify, hedge funds are aggressively buying options, betting on a decline in the euro against the dollar to capture gains. Data from the Depository Trust & Clearing Corporation (DTCC) shows that on Wednesday, the volume of euro-dollar put options with a notional value of 100 million euros ($113 million) or more was more than double that of call options. CME data shows that on Tuesday, put option volume was about 2.5 times that of call options. Thomas Bureau, head of global FX options trading at Societe Generale SA, said, "Over the past few trading sessions, among trades going long the dollar, euro-dollar has undoubtedly been one of the market's preferred instruments." He said Tuesday's market highlight was not only the directional demand for euro downside, but also the breadth of buying across tenors. He said hedge funds were mainly concentrated in the one-month tenor to cover the upcoming ECB and Federal Reserve meetings, while volatility relative-value strategy accounts relying on spread arbitrage were active further out the curve, concentrated in one-year instruments. In September, the euro fell 2.5% against the dollar, posting its worst monthly performance since July 2025, with France's escalating political and fiscal risks being one of the main reasons. Investors are nervous about the country's presidential election next year, as opposition parties have signaled unwillingness to compromise with President Macron. France's debt agency announced plans to issue a record amount of bonds in 2027 to finance the budget deficit and refinance maturing debt. The government is scheduled to unveil the 2027 budget on Thursday. Meera Chandan, co-head of global FX strategy research at JPMorgan in London, said the drivers of euro-dollar moves "include the market's hawkish repricing of Fed policy -- which euro-dollar had previously failed to keep up with -- as well as widening French government bond yield spreads and deteriorating terms of trade." European Central Bank President Lagarde said this week that rising bond yields will dampen economic growth and slow inflation, further weighing on the euro against the dollar. Julian Weiss, head of G-10 FX options trading at Bank of America in London, said demand for euro-dollar downside options is rising, with tenors extending from shorter dates all the way to summer 2027, thereby covering potential volatility from next year's European election cycle. He added: "We are seeing increased demand for euro put options from both hedge funds and real money. Given the stress in rates markets and Europe's dependence on energy, euro-dollar has been the preferred instrument among G-10 currencies for going long the dollar."