France's scheduled bond redemptions rise from €60.2 billion to €187.4 billion by 2027, then to €283.7 billion by 2029, deepening a debt crisis that is dragging on the euro. Marine Le Pen's calls for ECB rate cuts and reduced EU transfers are adding to investor unease, while a resilient US economy keeps the dollar bid.
French redemptions set to triple
French bond redemptions due in 2027 will rise from €60.2 billion to €187.4 billion, and by 2029 that figure climbs to €283.7 billion. Paris needs cash, so the government is increasing the volume of bond issues, a move that is fuelling panic among investors.
Marine Le Pen, the leading presidential candidate, has called for cuts to EU transfers and for the ECB to lower interest rates. Her statements risk putting France at odds with both the European Union and the European Central Bank.
Foreign bondholders are incurring losses because of both falling prices and the decline of the EURUSD exchange rate. These trends have coincided since the second half of August, creating a vicious circle that is difficult to escape.
Record US stocks add pressure on EURUSD
The rise of US stock indices to record highs is not helping EURUSD; on the contrary, it is creating headwinds for the pair. The dollar is acting as a safe-haven currency against European risks, and investors are channelling dollar-denominated capital into the stock market to a far greater extent than before.
As a result, a significant decline in yields on US bonds is not expected. The S&P 500's historic highs are therefore proving detrimental to the main currency pair, reigniting talk of American exceptionalism.
Rate-hike odds fall on both sides
The combination of attractive assets and a strong economy explains why the dollar is not falling, even as the chances of the Fed tightening monetary policy in October have fallen to 19%. Meanwhile, the probability of an ECB rate rise at the end of October has fallen to 10% because of the crisis in France and deteriorating trade conditions, which threaten to slow the economy.
American exceptionalism also helps explain why USDJPY is rising, despite the Fed and the Bank of Japan being expected to raise rates at roughly the same pace. The wide yield spread in the debt markets and the S&P 500's record highs are playing into the dollar's favor.
Source: ActionForex
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