06:00 AM EDT, 09/09/2025 (MT Newswires) -- As expected, French Prime Minister Francois Bayrou lost his vote of confidence in parliament on Monday and has tendered his resignation, noted ING.

The question now is whether the discordant political parties decide to agree on the 'what' (how to reach an agreement on the budget) before agreeing on 'who' to lead the government, wrote the bank in a note.

None of this can be seen as good news for the euro (EUR) and no doubt there will be episodic underperformance of French government bonds as investors speculate whether President Emmanuel Macron will be forced to call early parliamentary elections, stated ING.

EUR/USD, however, is doing "fine," pointed out the bank. The drop in short-dated United States rates has brought US dollar (USD) hedging costs for eurozone-based investors in U.S. assets down to 2.12% per annum -- the lowest since early April.

This should encourage fixed-income investors in particular to raise their US dollar hedge ratios and pressure the spot dollar exchange rate.

The eurozone calendar is quiet on Tuesday, but there are a couple of European Central Bank speakers: Joachim Nagel and Francois Villeroy de Galhau, both of whom are at a BIS Innovation Summit. Commentary on ECB policy looks unlikely so close to Thursday's ECB rate meeting.

EUR/USD may stall in the 1.1790/1800 area temporarily. But 1.20 is undoubtedly the multi-month target, according to the bank.

ING rarely hears from the Swiss central bank (SNB), but in a wide-ranging magazine interview released on Monday, SNB Governor Martin Schlegel seemed a little more tolerant of Swiss franc (CHF) strength. This comes at a time when EUR/CHF is trading near 0.93 and USD/CHF under 0.80 -- in other words, a time of a very strong nominal Swiss franc and a time when headline inflation is just 0.2% year over year.

Two comments stood out in the interview. The first was that there was a high hurdle to reintroducing negative interest rates. The SNB policy rate is currently zero and the next meeting is on Sept. 25.

The second was that "considering prices, and thus costs for companies, are rising significantly faster in other countries, the real appreciation is not as significant as it appears at first glance." Schlegel's comments are a little surprising given that the real Swiss franc is now on its early 2024 highs -- a time when the SNB turned more dovish, added ING.

The bank reads the comments as the SNB being a little more relaxed about Swiss franc strength, a cut to negative rates being more distant and in a world where politics and debt sustainability are playing a greater role in currency markets, more encouraging of strategic positions long the Swiss franc.

The comments make a EUR/CHF retest of this year's lows at 0.9220 more likely, noted ING.