Euro: Fiscal stress and fewer ECB hikes weigh against US Dollar – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad reports the Euro (EUR) is underperforming major currencies, with EUR/USD briefly hitting 1.1161, its lowest since May 2025. Elias Haddad flags France’s budget crisis spilling into wider Eurozone bond markets and complicating potential European Central Bank (ECB) Transmission Protection Instrument activation, leaving the Euro pressured by rising fiscal risk and expectations of a shallower ECB hiking cycle.

France risk and ECB constraints

"EUR is underperforming all major currencies, with EUR/USD dropping briefly to an intra-day low at 1.1161, its lowest level since May 2025. France’s budget crisis is spilling into other Eurozone sovereign bond markets, widening yield spreads to Germany."

"The ECB’s Transmission Protection Instrument (TPI) provides a backstop against disorderly spread widening, but activation is contingent on EU member state pursuing “sound and sustainable fiscal and macroeconomic policies.” France deteriorating finances complicate the case for intervention, although broader contagion would increase pressure on the ECB to act."

"Meanwhile, ECB Chief Economist Philip Lane highlighted the “increase in long-term interest rates constitutes a material tightening of financial conditions for the euro area.” That leaves EUR facing downside pressure from both rising fiscal risk and a potentially shallower ECB hiking cycle."

"Immediate support levels for EUR/USD are offered at 1.1200 (August-September 2024 double top) and 1.1111 (50% retracement of 2025-2026 uptrend)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)