Despite a French sovereign debt downgrade to A+ by Fitch over the weekend, the euro has risen to new highs for the year (1.188) as dollar bears keep pushing the dollar index lower ahead of an expected series of Fed rate cuts this year.
The core driver is US dollar weakness, not French upheavals.
In BofA Global Research’s Global FX weekly, published 12 September 2025, Claudio Piron and Adarsh Sinha write: “We maintain a bearish USD bias, looking for EUR-USD at 1.20 this year and 1.25 next.”
Piron and Sinha add that near-term Fed events may create short term reversals, but they stay bearish USD into Q4 as lower real rates and sticky break-evens come through.
The tone for today’s 17 September meeting is summed up by Alex Cohen, also of BofA, in his note “FOMC preview: Credit where credit is due”, published 11 September: “A ‘hawkish cut’ could see a bit of a relief rally in the USD, though we ultimately would expect this to be short lived.”
Cohen also notes that with pricing already “exceeding a full 25bp cut next week,” the bar for a fresh dovish catalyst is high even as the Fed’s stance gradually pivots.
Cross-asset context from BofA’s credit team points the same way. Considering current credit spread on 15 September, Yuri Seliger and Sohyun Marie Lee argue: “Such lofty valuations are driven by the combination of a dovish Fed (potentially signalling 75bps of cuts in 2025 on Wednesday), combined with strong US data.”
As cuts get closer, EUR demand has met less supply even when euro area headlines turn noisy.
Dealers report that the move has squeezed tactical shorts despite France’s politics. As one FX dealer told The Desk: “EUR strength caused by dollar weakness has been painful to short-term players in the face of the French political situation.”
The dollar weakness this year also reflects the newly nominated Fed member, and long-time Trump supporter, Stephen Miran’s strategic goals.
In his piece “A user’s guide to restructuring the global trading system”, published as the new administration was elected, he said: “A reduction in the value of the dollar helps create manufacturing jobs in America and reallocates aggregate demand from the rest of the world to the US”
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