The euro fell in European trading on Monday against a basket of global currencies, heading toward its first loss in three sessions versus the US dollar, pressured by concerns over France’s financial stability following a credit downgrade for the eurozone’s second-largest economy.

After last week’s hawkish European Central Bank meeting, the chances of further rate cuts in Europe by year-end diminished. To confirm these expectations, investors are now waiting for additional evidence on the future path of monetary easing in the euro area.

Price Overview

• Euro exchange rate today: the euro declined against the dollar by more than 0.1% to $1.1722, from an opening of $1.1735, after hitting a high of $1.1736.

• The euro ended Friday slightly higher, gaining less than 0.1% against the dollar in its second consecutive daily advance.

• Last week, the euro gained 0.2% versus the dollar, also its second straight weekly rise, supported by reduced odds of further European rate cuts compared to rising expectations of US Federal Reserve easing.

Financial Stability in France

Fitch’s decision on Friday to downgrade France’s sovereign credit rating to its lowest ever triggered widespread concern in global financial markets. The loss of AA- status for the eurozone’s second-largest economy is viewed as a troubling sign of Europe’s fiscal fragility.

The downgrade reflects a combination of domestic political tensions and worsening public debt, adding pressure to European bond markets and raising fears among investors of contagion to other economies within the bloc.

European Interest Rates

• In line with expectations, the ECB last week left its main interest rate unchanged at 2.15%, the lowest level since October 2022, marking the second consecutive meeting with no change.

• In its monetary policy statement, the ECB said inflation is currently nearing its 2% medium-term target and that the Governing Council’s overall assessment of inflation expectations remained broadly unchanged.

• Sources indicated that policymakers believe no further rate cuts are needed to reach the 2% inflation goal, despite new economic forecasts pointing to lower rates over the next two years.

• Sources also noted that unless the eurozone faces another major economic shock, borrowing costs are expected to remain at current levels for some time.

• Market pricing for an October rate cut of 25 basis points has dropped from 30% to under 10%.

• Traders have pared back bets on ECB easing, signaling an end to this year’s rate-cutting cycle.

• To reassess these expectations, investors will closely monitor upcoming European economic data and remarks from ECB officials in the coming period.

The Japanese yen rose in Asian trading on Monday at the start of the week against a basket of major and minor currencies, moving into positive territory versus the US dollar amid strong safe-haven demand fueled by concerns over global financial stability.

The Bank of Japan meets later this week to discuss the appropriate monetary policy for the world’s fourth-largest economy, with expectations it will keep interest rates unchanged for the fifth consecutive meeting.

Price Overview

• USD/JPY today: the dollar fell about 0.2% against the yen to ¥147.39 from the opening level of ¥147.65, after hitting a high of ¥147.77.

• The yen ended Friday down about 0.3% versus the dollar, its second loss in three days, pressured by weak prospects for a Japanese rate hike.

• Over the past week, the yen lost 0.2% against the dollar, its third straight weekly decline, amid mounting political uncertainty in Japan following Prime Minister Ishiba’s resignation.

Financial Concerns

Fitch’s downgrade of France’s sovereign credit rating on Friday to its lowest ever sparked broad concern in global financial markets. The loss of AA- status for the eurozone’s second-largest economy is seen as a troubling sign of Europe’s fragile fiscal situation.

The downgrade reflects a mix of domestic political tensions and surging public debt, increasing pressure on European bond markets and raising investor fears of contagion to other economies in the bloc.

Traders have recently dumped long-term government bonds in Europe, the UK, and the US amid renewed concerns over rising debt levels in major economies. This shift has raised market worries that governments worldwide may lose control over fiscal deficits, threatening higher borrowing costs and increased pressure on global financial stability.

Bank of Japan

• The Bank of Japan meets on Thursday to review policy, with decisions due Friday.

• Market pricing for a 25-basis-point rate hike at this meeting currently stands near 20%.

• With expectations firmly leaning toward no change in rates for a fifth straight meeting, focus will be on Governor Kazuo Ueda’s comments regarding the policy outlook.

Yen Outlook

Analysts at MUFG wrote that the yen’s performance remains weak in the near term, weighed down by Japan’s political uncertainty after Ishiba’s resignation.

They added that the BOJ will need to signal the possibility of a rate hike soon—perhaps as early as next month—to help reverse yen weakness.

Copper prices fell on Friday as the dollar strengthened against most major currencies, alongside concerns over Chinese demand and rising warehouse inventories.

The Yangshan copper premium rose 1.8% to $58 per ton, the highest level in three months.

The Chinese yuan hit a one-week high against the US dollar, making dollar-denominated metals more attractive to Chinese buyers.

Meanwhile, China’s imports of unwrought copper reached 425,000 tons in August, down from July but higher than a year earlier. Imports of copper concentrates climbed to 2.76 million tons, the highest level in four months.

Analysts at ANZ Bank said in a note: “Falling treatment charges have failed to curb China’s appetite for copper concentrates. Favorable import parity factors and expectations of weaker domestic production are likely to keep refined copper imports strong in September.”

On the trade side, overall Chinese export growth slowed in August to its weakest pace in six months, while imports rose 1.3%, compared with 4.1% growth in the previous month.

Registered copper inventories at the London Metal Exchange stood at 155,825 tons, with outflows of 2,125 tons across several locations, along with a fresh 8,500-ton cancellation in South Korea, according to daily exchange data.

Separately, the US dollar index rose 0.2% to 97.7 points at 16:24 GMT, after hitting a high of 97.8 and a low of 97.4.

In US trading, copper futures for December delivery fell 0.2% to $4.65 per pound as of 16:31 GMT.

Silver prices rose in the European market on Friday, extending gains for the third day in a row, surpassing the psychological barrier of $42 an ounce for the first time since 2011, marking a new 14-year high, and heading for a fourth consecutive weekly gain.

A series of weak data on the US labor market, along with moderate US inflation figures, boosted expectations that the Federal Reserve will cut interest rates by 25 basis points next week.

Price Overview

• Silver prices today: Silver rose by 2.2% to $42.47, the highest since September 2011, from the opening level of $41.57, with a low of $41.40.

• At Thursday’s settlement, silver gained 1.0% in its second consecutive daily rise, supported by declines in the dollar and US yields.

Weekly Trading

Over the course of this week, which officially concludes at today’s settlement, silver is up about 3.5% so far, heading for its fourth consecutive weekly gain.

These weekly gains are attributed to strong demand for precious metals as a safe haven, amid mounting concerns about rising global debt levels and escalating geopolitical tensions in the Middle East and Eastern Europe.

US Interest Rates

• Weekly jobless claims rose last week, confirming a significant weakening in the labor market. This followed last Friday’s US employment report, which indicated that job growth nearly stalled in August alongside a higher unemployment rate.

• According to the CME FedWatch tool: the probability of a 25 basis point rate cut at the September meeting is currently priced at 100%, while the chance of a 50 basis point cut stands at 7.5%.

• The probability of a 25 basis point rate cut in October is also fully priced in at 100%, with the chance of a 50 basis point cut steady at 6%.

• The Federal Reserve meets next week to discuss monetary policy adjustments in line with US economic developments, with a 25 basis point rate cut widely expected.

Chinese Demand

Industrial activity in China exceeded expectations in August, recording its fastest pace of growth in five months, according to recent data released in Beijing, in the latest sign of improving economic activity in the world’s largest consumer of metals and commodities.