Back-to-School Questions
Fundamentally, the trend remains positive for the euro, despite some profit-taking in recent sessions. We are still aiming for an EUR/USD pair at 1.20 by the end of the year, for instance.
The macro point
The foreign exchange market is banking on a Fed rate cut as early as September. Caution is advised, however; we may need to wait a little longer, especially if U.S. inflation figures continue to send mixed signals. As in almost every summer, the foreign exchange market is questioning the real state of the U.S. economy. This time, concerns have been reignited following a publication from the NBER (American equivalent of INSEE) indicating that there is a 71% probability that the economy has already been in recession since May 2025. We remain skeptical. The methodology used calls for caution. It is based on the analysis of thousands of data points over a very long period, while the structures of the economy and the job market have substantially evolved between 1929 and today. Furthermore, job creation in cyclical sectors is far from concerning levels, as are those outside the public and health sectors. Finally, more broadly, the U.S. economy is doing well. Business investments, the manufacturing sector, international trade, and even real estate are in better shape today than a year ago. We are more in a stabilization phase. In our view, concern should rather focus on the short-term evolution of inflation than on the possibility of a recession. This is precisely what the Federal Reserve (Fed) highlighted during its July meeting. A majority of FOMC members (the committee that decides on rate changes) voiced their perplexity regarding the evolution of inflation, due to the effect of tariffs. For now, the market doesn't seem overly concerned and still bets on a rate cut in September. Contrary to consensus, we wouldn't be surprised if the Fed waits a bit longer and only cuts its rates later in the year (potential cut of -50 basis points in two phases in October and December). If the Fed were to surprise the market – as we anticipate – it could temporarily support the dollar. Something to keep in mind. In the eurozone, the focus remains on debt. This time, it's France that is the weak link. In 2026, our country will have to issue 310 billion euros in debt if we stick to the Bayrou government's forecasts, which are unlikely to change substantially. It's a huge amount. Especially huge when considering that French debt is competing with other European debts to attract foreign buyers. For a long time, investors turned to French debt because Germany – considered the most reliable issuer in the eurozone – was issuing little debt. This will change next year. German debt issuance will reach 330 billion euros. Added to this is Italian debt, now perceived as less risky than French debt, simply because the Meloni government has made efforts to reduce the deficit. We will find ourselves next year in an unprecedented situation. Our debt will compete with that of Germany and Italy, and as investors will prefer those two countries, our borrowing rate will continue to rise inexorably – which has been the case since 2021. What effect on the euro exchange rate? Minimal, as evidenced in recent sessions following the announcement of the confidence vote scheduled for September 8. Why? For now, France's troubles are not causing financial contagion to the rest of the eurozone. This is why the European Central Bank (ECB), which meets on September 11, should refrain from publicly commenting on the financial situation and intervening.
Technical point
Among the losers in the foreign exchange market this year is the Indian rupee. U.S. tariffs of 50% on Indian imports have caused it to plummet. It is the weakest currency in Asia in 2025, with capital outflows of nearly 5 billion dollars since July. Restoring foreign investor confidence will be very difficult.
The support and resistance levels displayed below indicate the low and high points within which prices should move during the week. | Weekly Supports | | Weekly Resistances | |
|---|
| S2 | S1 | R1 | R2 |
| EUR/USD | 1.1488 | 1.1510 | 1.1734 | 1.1822 |
| EUR/GBP | 0.8510 | 0.8555 | 0.8688 | 0.8712 |
| EUR/CHF | 0.9210 | 0.9250 | 0.9400 | 0.9422 |
| EUR/CAD | 1.5777 | 1.5880 | 1.6099 | 1.6134 |
| EUR/JPY | 168.99 | 170.12 | 171.99 | 173.00 |
Announcements to follow
It's recovery time. As usual, the market will watch the eurozone inflation figures in August. Beware, they will have no impact on the ECB's monetary policy conduct. Through its president, it confirmed a few weeks ago that it does not plan to cut rates in September.
U.S. unemployment will be more important to consider. The downward revisions of job creations in May and June revealed in July had been a factor reviving fears of a U.S. recession. If the job market slows significantly, this could heighten pressure on the Fed to lower rates quickly – and it’s quite likely that President Donald Trump will issue a sharp statement aimed at the central bank.
Below are the publications and events expected to have a major impact on currency price developments.
| Day | Time | Country | Indicator | What to expect? |
|---|
| 02/09/2025 | 11:00 | Eurozone | Inflation in August | Low impact. The European Central Bank has indicated it does not intend to lower rates in September. |
| 05/09/2025 | 14:30 | USA | Employment in August | Closely watch due to significant revisions for May and June. |
The information presented in this publication is provided to you for informational purposes only and does not constitute investment advice, a sales offer, or a solicitation of purchase, and should not be used as a basis or considered an incitement to engage in any investment.