Markets steadied after Marine Le Pen set out fiscal targets for France ahead of next spring’s elections. The plan aims for a primary balance within 18 months, a deficit reduced from 5.4% of GDP to below 3% by 2030 and under 2.5% by 2032, and a debt ratio moving from 121% of GDP expected next year to about 112% by 2032, backed by a constitutional “golden rule”. It also sketches €140bn of net savings by 2032 alongside at least €30bn of tax cuts. France’s 10-year OAT-swap spread narrowed from around 130 bps to 117 bps, while EUR/USD lifted from just above 1.12 to above 1.1250 before slipping to about 1.1230 as Brent rebounded above $101/b after testing $97/b; EUR/GBP refocused on 0.8455.
The yen weakened on reports of a potential second, smaller supplementary budget in fiscal 2026, with USD/JPY rising from 158 to 15.8 and resistance seen at 159.04 and 160.39. Attention turns to a $39bn 10-year Note auction, with the US 10-year yield near 5.31% versus last week’s 5.34%, and FOMC Minutes as markets price a 20% chance of back-to-back Fed action in October. In India, the RBI lifted its policy rate 25 bps to 5.5% as August CPI ran at 4.82%; it raised FY2027 inflation to 5.2% from 5% and sees core at 4.4% versus 4.3%, while lifting growth to 7.1% from 6.7% after 7.8% in April–June. USD/INR rose to 96.53. Brussels is weighing a levy on EU companies with revenue above €100mln under the Corporate Resource for Europe (Core) proposal.
Energy, Euro, And Currency Hedging Strategies
We advise keeping a close eye on the energy sector as Brent crude pushes back above $101 per barrel amid escalating tensions in the Strait of Hormuz. This surge in oil prices is capping the euro’s recovery, keeping the EUR/USD pair hovering around the 1.1230 level despite temporary relief from French fiscal proposals. Derivative traders should consider hedging euro exposures using short-dated options, as geopolitical risks threaten to keep the single currency under pressure in the coming weeks.
In the currency space, we are seeing the Japanese yen lose ground, with USD/JPY testing the 158 to 159 range following reports of a potential supplementary budget in Japan. If the pair breaks past the immediate technical resistance at 159.04, the path opens up toward the key 160.39 level. We recommend looking at call options on USD/JPY to capture this upward momentum, especially as domestic fiscal expansion plans complicate the Bank of Japan’s tightening path.
Bond Market Outlook And Emerging Market Risks
The US bond market is facing a crucial test today as the 10-year Treasury yield hovers near its multi-year peak of 5.31%. With a massive $39 billion bond auction and the upcoming FOMC minutes, the market is highly sensitive to any clues about further interest rate actions this October. We suggest using interest rate swaps or Treasury futures to position for sustained higher yields, given that new marginal buyers have yet to step in.
In emerging markets, India’s central bank recently raised its policy rate to 5.5% to combat rising inflation, yet the rupee remains weak with USD/INR trading near historical lows at 96.53. This divergence suggests that local rate hikes are not enough to support the currency against a strong US dollar and high global energy costs. We see a strong case for maintaining long positions on USD/INR derivatives to hedge against further rupee depreciation in the near term.
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