150bp French spreads: why the Euro is struggling to recover against the US Dollar

The latest institutional commentary points to a Euro weighed down by persistent French risk premia and an environment where the US Dollar remains supported but with more two-way trading. ING underscores how elevated French spreads are keeping a risk premium embedded in the Euro, while OCBC sees AI-driven US growth and Asian currency management limiting both sustained US Dollar weakness and unchecked upside.

ING flags French spread risk as a persistent drag on Euro performance

ING highlights that elevated French spreads are becoming entrenched, reinforcing a structural risk premium that makes it harder for the Euro to recover against the US Dollar. The bank suggests that without clearer improvement in French and broader European risk perceptions, and more decisive moves in oil prices, the Euro’s upside versus the US Dollar will remain constrained.

"French spreads didn’t benefit from lower oil prices yesterday, signalling levels above 150bp are the new normal now. It therefore remains hard for the euro to shake out the lingering risk premium, and much more tangible progress is needed for oil to trade sustainably lower from here."

OCBC sees AI-driven US growth keeping US Dollar supported but no longer a one-way trade

OCBC stresses that positioning for sustained US Dollar weakness is premature, as AI-related support for US growth continues to underpin the currency even if the trend is less one-sided. The bank also notes that firmer currency management in China and potentially Japan could cap US Dollar gains by anchoring Asian currencies, pointing to a more range-bound and tactical trading environment for the US Dollar.

"We still think it is too early to position for sustained USD weakness. AI remains broadly supportive of US growth and the USD, but it is no longer a one-way trade. USD upside should also be more contained, particularly as firmer currency management in China and potentially Japan helps anchor regional Asian currencies."

The takeaway

Taken together, ING’s focus on entrenched French risk premia and OCBC’s view of AI-supported but more two-way US Dollar trading sketch a landscape where the Euro faces ongoing headwinds while the US Dollar stays broadly underpinned. The balance of risks points to a cautious stance on Euro appreciation against the US Dollar, with investors likely to favor tactical, range-bound strategies rather than strong directional bets until European risk premiums ease and US growth drivers become clearer.