Euro Rebounds Versus Dollar as France Political Flux Eases
The euro bounced back above $1.16 on Wednesday from a low of $1.154 hit as investors welcomed signs of political stabilisation in France following a successful budget presentation.
FX data from the previous day showed that the euro against the U.S. dollar (EUR/USD) exchange rate reached a two-month low when it tested the 1.1542 support level.
Subsequent attempts to bounce higher failed to move above the 1.1630 level amid declining buying interest, which kept the euro trading lower.
As markets priced in Fed rate cuts in October and France’s political stability, the euro gained traction versus the US dollar and British pound in particular.
The US dollar faced broad based sell pressures over Fed rate cut expectations amidst US-China trade war. Investor confidence in the US dollar as a safe-haven asset declined again.
Fed Chair Jerome Powell’s view that the US labour market is softening and the prospect of imminent rate cuts reduced dollar support, a dynamic amplified by the US government shutdown that has delayed key data and left markets more reliant on Fed guidance.
However, US-China measures, including reciprocal port fees and China’s sanctions on US-linked Hanwha units, raised shipping and receipts risk and increased exporters’ hedging demand.
The markets are pricing uncertainties as President Trump’s threat to impose harsh tariffs on China starting next month despite the ongoing US government shutdown now in its third week.
Supporting the Euro recovery, French Prime Minister Lecornu delivered the budget yesterday with compromises on the controversial pension reform and the extent of fiscal consolidation next year.
Market analysts expressed that the compromises will let Lecornu survive longer than his last stint. French financial assets gained ground and the euro rose as Lecornu moved toward securing a compromise to avoid a government collapse and pass next year’s budget.
Lecornu told parliament he supports suspending pension reforms until the 2027 presidential election, aiming to secure Socialist backing and survive crucial no-confidence votes on Thursday.
In the US, Fed Chair Powell highlighted ongoing deterioration in the labor market, reinforcing expectations of another rate cut this month. This dovish outlook contrasts with ECB projections, which suggest interest rates are likely to remain unchanged.
US–China trade tensions intensified; Trump has signalled Washington might end certain trade ties with China. Both nations imposed extra port fees on each other’s shipping firms, following Trump’s threat of 100% tariffs and Beijing’s tighter controls on rare earth exports.
FX analysts see a potential for a weaker US dollar if the US government shutdown continues and maintains its negative long-term outlook for the dollar, with the EUR/USD pair set to rise. #Euro Rebounds Versus Dollar as France Political Flux Eases France’s Persistent Political Turmoil Deepens Fiscal Uncertainty –Fitch
