EUR/USD moved higher and attempted to stay above 1.0500 during European trading hours on Thursday (5/12). The major currency pair strengthened slightly as investors tried to recover from the anticipated collapse of Michel Barnier's three-month-old government after it lost a no-confidence motion brought by a coalition of right-wing and left-wing politicians.

The dismantling of the French government has plunged the economy into a deeper crisis by limiting its capacity to tame a burgeoning fiscal deficit. Right-wing and left-wing lawmakers backed the no-confidence motion against Barnier after claiming his government's budget was "flawed and damaging" to the French people. The budget proposed €60 billion in tax hikes and spending cuts aimed at tackling France's ballooning deficit, according to Firstpost.

Ahead of the no-confidence motion, Barnier pleaded with lawmakers, "This reality will not be erased by the magic of a censure motion." He added that the budget deficit would come back to haunt whichever government comes to power next.

French political turmoil has complicated the path forward for the already troubled Eurozone, which faces the risk of a severe downturn in economic growth due to weak demand and potential tariffs once the new administration of US President-elect Donald Trump takes office. Meanwhile, German monthly factory orders fell in October but at a slower pace than expected. The economic data contracted by 1.5% after rising 7.2% in September. Economists had expected factory orders to fall by 2%.

Source: FXStreet