The euro has done what it had to—survive not one, but two votes of no confidence. First, the French government fended off a challenge from the left, then from the right. The yield spread between French and German bonds changed very little, and EUR/USD pulled back slightly from local highs. Was the old "buy the rumor, sell the fact" principle at play? Credit Agricole believes otherwise. According to the bank, all the negative news has already been priced into the euro, and there is strong demand from non-residents around the $1.15 area to hedge currency risk through selling U.S. dollars.

French-German Bond Yield Spread Dynamics

Sebastien Lecornu remains in power. First, 271 deputies voted for his resignation, then 144. But to topple the government, the National Assembly needed 289 votes. A political concession was made: the pension reform was postponed to 2027, the year of the next presidential elections. If Emmanuel Macron wins, he may carry it through. If he doesn't, the new head of state will decide what to do.

Meanwhile, Washington is trying both to de-escalate the trade conflict and exploit the opponent's weaknesses. It's possible that Beijing overplayed its hand. The disruption of supply chains caused by tighter controls on rare-earth element exports comes off as China inflicting damage on the global economy without clear justification. Negotiations are on the horizon, with a final deadline set for November 1.

According to the futures market, the revival of trade uncertainty is increasing the risk of a U.S. economic slowdown and is pushing the Federal Reserve closer to aggressively loosening monetary policy. Derivatives are now pricing in the possibility of a 50 basis point rate cut as early as October or December. This is putting considerable pressure on the U.S. dollar.

Investor Expectations for Fed Rate Cuts

The realization that both the U.S. economy and stock indexes are under threat is prompting the White House to attempt to de-escalate the trade conflict. Treasury Secretary Scott Bessent has floated the idea of extending the current tariffs on China for more than three months. This issue is expected to be discussed in November.

Late autumn is also set to bring a Supreme Court hearing on the legality of Donald Trump's tariffs. The president has hinted that he may attend the hearing in person. A repeal of the import tariffs could sow widespread chaos throughout financial markets. Still, investors currently have other concerns. The euro has unloaded its political burdens, while the U.S. dollar is once again hurting in its most vulnerable area—Federal Reserve policy.

Technically, on the daily chart, EUR/USD has returned to the fair value range and continues its rally. A breakout above the 1.1675 and 1.1695 resistance levels would provide solid grounds for adding to long positions initiated from 1.1635.