The EUR/USD is making gains, hovering around 1.1670 as European trading kicks off on Monday. The euro has shown some strength against the US dollar, likely due to improved risk sentiment. Nevertheless, escalating fiscal uncertainties in France could put a cap on gains for major currency pairs. Traders are also keenly awaiting Germany’s producer price index (PPI) data set to be released later today.
According to a report from Bloomberg on Saturday, S&P Global Ratings has downgraded France’s credit rating from AA- to A+. This marks the second downgrade within just over a month by two of the three major rating agencies, following similar actions by Fitch and DBRS.
This downgrade follows a week of significant political unrest in France, where Prime Minister Sébastien Lecornu narrowly avoided two votes of no confidence in parliament. To secure his position, his government had to abandon President Emmanuel Macron’s unpopular pension reform for 2023. This political situation might put pressure on the euro against the US dollar in the near term.
On the other side of the Atlantic, the U.S. Federal Reserve might reduce interest rates by a quarter point during its upcoming meeting on October 28-29, 2025. The CME FedWatch tool indicates that the market expects almost a certainty that the Fed will lower rates at this meeting, adjusting the federal funds rate range to 3.75% to 4.00%.
The ongoing federal government shutdown in the U.S. could also weaken the dollar compared to other currencies. The shutdown has now reached its 20th day, with no resolution in sight, as senators have failed to break a voting deadlock for the tenth time. This closure marks one of the longest funding gaps in recent history.
