29.08.202500:27 Forex Analysis & Reviews: The Dollar Can't Be Saved

Fear makes the wolf bigger than he is. Political crises in France and the Netherlands led to a decline in the EUR/USD, but the regional currency quickly regained its footing. Dick Schoof's government survived a vote of no confidence and remained in power. Francois Bayrou's resignation as prime minister is unlikely to derail the impressive rally in European assets. The "sell Europe" strategy is destined to fail. That means it's time to buy the main currency pair.

Last year's political crisis in France looked more destructive, as the German economy was underwhelming. In 2025, thanks to fiscal stimulus from Friedrich Merz, the German engine is ready to carry the entire eurozone on its shoulders. Fears of a recession in the bloc's second-largest economy due to uncertainty and shrinking consumer spending seem exaggerated.

French-German Bond Spread Dynamics

No matter how much the spread between French and German bond yields widens—a key indicator of European political risk—it will not derail the rally in European stock indices. In 2025, the Euro Stoxx 600 outperformed the S&P 500 by 13 percentage points in dollar terms, marking the fastest outperformance in nearly two decades.

This is the view of Goldman Sachs, JP Morgan, and Citigroup. These banks believe the risk of French contagion spreading to other eurozone countries is low. The success of European stock indices and capital flows from North America to Europe will likely support the uptrend in EUR/USD, especially as the US dollar remains under pressure.

European vs American Stock Index Dynamics

Donald Trump cannot fire the Fed Chair. But he can remove FOMC governors and Federal Reserve Bank presidents. For that, a reason is needed. With Lisa Cook, such a reason was found. Why not fully reshape the Federal Open Market Committee? If there's a person, a pretext can be found. No one in this world is sinless.

Making the central bank dance to your tune is unimaginably tough. But Trump cracks complex puzzles like nuts. Anything is possible, and expectations of aggressive Fed monetary expansion in 2026 are fully justified. The lower the federal funds rate falls, the more painful it is for the US dollar.

The European Central Bank has finished, or nearly finished, its easing cycle. The Fed is just resuming. What if the cost of borrowing plummets by 300 bps, as the White House occupant wants? You wouldn't want to be a bear in the major currency pair.

Technically, on the daily chart, EUR/USD broke fair value at 1.165 from below. The bulls' attack has begun. The best course is to be in the same boat with them—keep buying euros against the US dollar toward $1.200 and $1.220.