ING: EUR/USD - FJElite

A hawkish Federal Reserve hike in September and a continued rise in US yields are pressure testing the global financial system. The most recent asset class to give way is

French government debt, where politicians lack the urgency to tackle budget deficits. We see this more akin to the 2018 Italian debt crisis - again, driven by elections - rather than Greece’s selective default in 2012.

Expect more volatility in the OAT-Bund spread into year-end, but passage of modest fiscal consolidation should prevent a much heavier sell-off in French debt and the euro. EUR/USD is set to stay offered in a 1.10-1.15 range. The main risk to the upside stems from uncertain White House policy post the November midterm elections.