French downgrade already priced in?

Largely, but that does not mean it will be a sell the rumor/buy the fact scenario.

I’d still expect the euro to fall if half of the Franco-German core of the euro lost its AAA. Don’t forget that the French banks will be downgraded further, and other multinational European institutions like the EFSF will likely be cut as well.

With the EFSF expected to sell bonds tomorrow, it might make sense for S&P to go ahead and conclude its review of France today so investors don’t get caught buying a piece of AAA paper only to see it downgraded days later. Given their subprime track record, they may be more sensitive to those sorts of concerns these days than in the past.