Euro drops as concerns about French politics weigh
Markets still do not price in a government collapse in France
Dollar rises after first weekly fall since September
Yen off highs, ponder chance of BOJ rate hike

Dec 2 Reuters The euro dropped on Monday versus a strengthening U.S. dollar on growing concerns about a possible government collapse in France, which would stall plans to curb a burgeoning budget deficit.

The risk premium investors demand to hold French debt rather than benchmark German bonds jumped after France39;s farright National Rally RN president Jordan Bardella said his party would likely back a noconfidence motion in the coming days unless there were a last minute miracle.

Leading RN lawmaker Marine Le Pen has given Prime Minister Michel Barnier until Monday to meet her party39;s budget demands.

The euro fell 0.65 to 1.0506.

French politics looks to be belatedly playing a role in forex and driving some euro underperformance, said Chris Turner, head of forex strategy at ING.

Most analysts still reckoned that Le Pen didn39;t want to bring down the government as she could be blamed for a financial and economic crisis in France.

Yet it looks like the pressure may stay on the euro with a potential noconfidence vote coming on Wednesday, added Turner, after flagging that ING economists think RN would not make the government collapse.

The yield spread between French and German 10year government bonds a gauge of the premium investors demand to hold…