Upheaval in France
*This anti-crisis and anti-speculation measure was presented in 2014 by the then-President of the ECB, Mario Draghi. However, it was never implemented. Many European states are reluctant to undertake structural reforms that, in the short term, can have recessionary effects.
The macro point
Barring any last-minute surprise, the vote of confidence is expected to lead to the fall of the Bayrou government. We believe the effects on euro assets (especially the currency) will be limited. In the worst case, the ECB reserves the right to intervene. In France, as in other developed countries, the cost of government borrowing is rising. In the United States, for example, the 30-year rate is approaching the psychological threshold of 5%. All of this signals growing investor anxiety about the trajectory of public debt in developed countries. It is rare for tensions in the bond market not to have negative consequences on other markets. But for now, it's holding. Stocks are rising sharply. Take Chinese stocks, they are at a 10-year high. There is no turmoil in the foreign exchange market either. Major currencies continue to follow the same trend as a few weeks ago: rising for the euro, falling for the US dollar and the yen. Institutional investors (banks, investment funds, etc.) seem to be buying a little more safe-haven assets than usual—mainly gold and the Swiss franc. However, we are far from a panic sentiment. How does the rest of the year look from a macroeconomic perspective? It is likely that the theme of protectionism and resulting inflation is behind us. The Trump administration seems more focused on next year's electoral deadline. To win, a healthy economy and a rising stock market are needed. Lingering protectionist sentiments are not good in this regard. The Federal Reserve is expected to assist the White House a bit by lowering its key rate in September by -25 basis points. It's a given. This will help revitalize American consumer confidence, which was low this summer. Good news, the feared devaluation of the dollar is certainly no longer relevant. We only expect a depreciation of the Dollar Index by about -3% by the end of the year. It's minimal. In Europe, the theme of economic revival has taken a hit. As feared, the defense spending boost mainly benefits American companies. As for the growth dynamic, it remains weak. According to the Netherlands-based Madison Project, Europe's share of global wealth is at its lowest point since the Middle Ages. It's chilling. The good surprise this fall is the return of China. Indicators tracking credit flows in the economy show that Beijing has opened the floodgates, which should stimulate activity. This will support the real estate sector—the bubble deflation will take several years—and exports, which are somewhat hampered by the trade war.
Technical point
In the foreign exchange market, the dollar and the British pound are under pressure. The British currency is heavily penalized by the rise in 30-year borrowing costs, which are now at their highest level since 1998. Unlike the euro, the British pound is very sensitive to bond market fluctuations, which should persist in the coming weeks. This means that the EUR/GBP pair should continue its progression and potentially exceed the resistance at 0.87. The issues with the dollar are different. The White House's attempt to take control of American monetary policy does not sit well with everyone and prompts investors to position themselves for selling the greenback. A few days ago, the Treasury Secretary of the Trump administration advocated for a -50 basis point rate cut by the Federal Reserve in September (unlikely), considering that rates are 150 to 175 basis points above their normal levels. Clearly, challenging the central bank's independence is a thorn in the side of the dollar. The supports and resistances shown below indicate the respective lows and highs within which prices should evolve during the week. | Weekly Supports | | Weekly Resistances | |
|---|
| S2 | S1 | R1 | R2 |
| EUR/USD | 1.1489 | 1.1544 | 1.1712 | 1.1802 |
| EUR/GBP | 0.8511 | 0.8550 | 0.8689 | 0.8733 |
| EUR/CHF | 0.9218 | 0.9259 | 0.9400 | 0.9412 |
| EUR/CAD | 1.5808 | 1.5912 | 1.6212 | 1.6256 |
| EUR/JPY | 168.90 | 170.22 | 172.99 | 173.10 |
Announcements to follow
Barring any last-minute surprises, the vote of confidence in France is expected to lead to the fall of the Bayrou government. Should market panic be feared? So far, tensions have been low, including on the bond market which is in the forefront. At the end of August, Japanese investors bought French debt in large quantities. We believe the negative effect on the euro will also be limited – similar to what happened at the time of the Barnier government censure at the end of 2024. If things go awry – which is not our main scenario – the European Central Bank (ECB) could intervene. In December 2024, it quietly bought a small amount of French debt, which helped limit the rise in borrowing costs. We doubt that emergency levers – like the OMT program (unlimited sovereign debt purchase on the secondary market by the central bank in exchange for the implementation of a structural adjustment program)* – are on the agenda. The ECB is also expected to keep its rates unchanged at its meeting scheduled on Thursday. Its president, Christine Lagarde, has been clear on this. This doesn’t necessarily mean that the rate-cutting process is over. If growth weakens significantly, a further -25 basis points cut might be appropriate. On the American side, August inflation will need to be watched closely. The latest figures regarding price changes show persistent inflationary pressures. At the same time, the labor market is slowing down. This will seriously complicate the task of the Federal Reserve (Fed). Economists' consensus still assumes a rate cut in September. This is not assured, in our view. Caution. Below you will find publications and events that should have a major impact on currency exchange rates.
| Day | Time | Country | Indicator | What to expect? |
|---|
| On 08/09/2025 | To be defined | France | Vote of confidence | Low impact on the foreign exchange market. |
| On 11/09/2025 | 14:15 | Eurozone | Central Bank meeting | No new rate cut expected. |
| On 11/09/2025 | 14:30 | USD | US Inflation (August) | Previous estimate for July at 2.7% year-on-year. |
| On 12/09/2025 | To be defined | France | Fitch review of French debt rating | Currently under negative outlook. High risk of downgrade. |
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