With political and fiscal risks in France intensifying, hedge funds are aggressively buying options to bet on a decline in the euro against the US dollar for profit, according to a report.

Data from the Depository Trust and Clearing Corporation (DTCC) show that on Wednesday, the trading volume of euro-dollar put options with a notional value of 100 million euros (113 million US dollars) or more was more than double that of call options. Data from CME Group show that on Tuesday, put option volume was approximately 2.5 times that of call options. Thomas Bureau, global head of FX options trading at Societe Generale SA, said, "Over the past few sessions, among trades long the dollar, euro-dollar has undoubtedly been one of the market's top choices." He noted that Tuesday's highlight was not only the directional demand for euro downside but also the broad range of maturities involved in the buying. He said hedge funds were mainly concentrated in the one-month tenor to cover the upcoming European Central Bank and Federal Reserve meetings, while volatility relative-value strategy accounts relying on spread arbitrage were active further out the curve, focusing on one-year tenors.

In September, the euro fell 2.5% against the dollar, marking 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. The French debt agency announced plans to issue record-scale 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 pace 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 pressuring 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 ranging from shorter dates all the way to the summer of 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 interest rate markets and Europe's dependence on energy, euro-dollar has been the preferred tool among G-10 currencies for going long the dollar."