EUR strength could quickly reverse
The German stimulus package unveiled last week removes the debt brake for most defence spending and launches a 500-billion-euro financing vehicle to pay for infrastructure.
This “whatever it takes” moment lifted the euro above the 1.08 level, and markets no longer expect the ECB to cut rates below 2%, with a pause at the bank’s next meeting in April now looking like the base case scenario for markets.
We note that potential negatives for the euro remain.
Tariff uncertainty remains significant, and the substantial weakening of American commitment to the defence of Europe cannot be counted as a long-term positive.
The sharp move in EUR/USD in the past week has also left it prime for a reversal, particularly should upcoming US data suggest that fears over an imminent contraction in the world’s largest economy are perhaps slightly overdone.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
