Euro shrugs off France’s crisis, for now
The euro barely blinked at the collapse of French Prime Minister François Bayrou’s government, an outcome widely anticipated. In fact, EUR/USD has nudged up to a one-month high, hovering around half a cent below a fresh four-year peak. But the calm may be deceptive. France’s deepening political and fiscal instability is quietly eroding the foundations of the eurozone, and the single currency’s composure could soon crack.
Markets are in limbo, awaiting President Emmanuel Macron’s next move, his fifth prime ministerial appointment in under two years. Yet the churn at the top masks a more systemic fragility. France is now the euro area’s fiscal outlier, with a deficit projected to hit 6.1% of GDP next year, far above the 4.6% target submitted to Brussels. Without corrective action, debt is on track to surge from 113% of GDP in 2024 to over 125% by 2029. The Finance Ministry’s own figures paint a bleak trajectory: €51.1 billion in additional spending next year alone.
This isn’t just a French problem. Germany, the eurozone’s other economic pillar, is also buckling under weak growth and rising unemployment. Together, the twin engines of the eurozone are misfiring – and yet markets remain oddly complacent. Swap pricing implies just a 37% chance of another ECB rate cut this year, despite mounting evidence that political dysfunction and fiscal slippage in Paris could force the central bank’s hand.
If Macron’s next prime minister fails to build a coalition or present a credible budget, French OAT spreads will likely widen again – surely dragging euro sentiment down with them? That said, as long as France’s political instability remains siloed from broader eurozone risk, it’s unlikely to derail EUR/USD’s 2025 rally – especially with dollar weakness still driving the narrative. Although we think a fresh catalyst is needed to give the pair a further push higher.
The suspension of the “de minimis” rule by the Trump administration has introduced a significant shift for Canadian businesses, particularly those engaged in e-commerce with U.S. customers. This change eliminates the previous exemption that allowed low-value packages to enter the U.S. duty-free, now requiring a new segment of businesses to demonstrate compliance with the United States-Mexico-Canada Agreement (USMCA) to avoid steep tariffs. For small enterprises, this necessitates navigating complex paperwork to ensure compliance for their online sales.
In terms of trade, the USMCA will keep playing a key role in keeping the Canadian economy from further decline. Recent U.S. trade data indicates a notable increase in the use of the agreement, with 56% of Canadian goods crossing the border under the USMCA in June, up from a 2024 average of 38%. Furthermore, 92% of Canadian goods imported by the U.S. in June were not subject to tariffs, demonstrating the agreement’s effectiveness in mitigating the impact of new trade barriers.
The new challenge for small businesses is especially notable when contrasted with the overall trade data. While Canada’s overall merchandise trade deficit narrowed in July 2025, driven by strong export growth in key sectors like energy and motor vehicles, these gains primarily reflect the performance of larger, established industries with existing USMCA supply chains. The July 2025 merchandise trade data show a widening trade surplus with the U.S. and an increase in total exports, largely from crude oil and passenger cars. However, this positive macroeconomic trend masks the struggle of smaller, e-commerce-focused businesses that are now facing new administrative burdens and costs for low-value shipments, a segment of the economy that is a small but important contributor to Canada’s export diversity.
In FX, although the U.S. dollar is trading at its lowest level since late July, the Canadian dollar is struggling to trade below 1.38, having been the worst-performing currency among the G10 since August. This weakness is partially attributable to an increase in net short institutional positioning, as major economic data continues to point to sluggish growth in 2026. Furthermore, while Canada benefits from the CUSMA deal and has one of the lowest effective tariff rates globally, tariffs on other sectors and ongoing uncertainty about a new trade deal with the U.S. continue to dampen the medium-term economic outlook. This is compounded by the fact that even with a reduced correlation, a sustained drop in oil prices still negatively impacts the Canadian economy by reducing national income and growth, which in turn weakens the currency. Thus, even if the direct day-to-day link is not as strong as it once was, the underlying economic sensitivity to oil prices remains.
The key event today is the preliminary annual revision of U.S. jobs data, with a potential downward revision of up to 700,000 jobs through March.
GBP/USD eyes 1.36, but lacks fresh catalyst
Sterling is navigating a relatively quiet week, with softening US macro data remaining the dominant driver of price action. This will temporarily assuage the pound’s underlying bearish pressure: fiscal concerns tied to the UK government’s rigid fiscal rule.
Investors will be watching Friday’s release of monthly GDP, manufacturing, and construction output for signs of economic momentum in the UK. However, the prints are unlikely to shift the cautious tone the Bank of England has reiterated in recent communications. A dovish tilt is likely to assert itself further out, with sticky inflation remaining the BoE’s key concern for now. The impact on sterling via the yield channel remains, therefore, muted.
Even if US inflation data this week comes in softer than expected, it is unlikely to move GBP/USD meaningfully, as expectations of a Fed cut in September are largely priced in. As a result, we see the 1.36 resistance level as unbreachable this week.
Oil price down over 13% this year
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: September 8-12
All times are in EST.
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
