Euro: French spread widening threatens EUR/USD range – ING

FXStreet Insights Team FXStreet

ING’s Chris Turner flags that EUR/USD has been driven to yearly lows mainly by a hawkish reassessment of Federal Reserve policy, but warns French OAT‑Bund spread widening is an emerging concern.

French debt risk weighs on Euro

"It is hard to identify that the sell-off in French debt is being priced into the euro. EUR/USD has been driven to the lows of the year by the hawkish reassessment of Fed policy rather than any independent euro weakness. But the French OAT-German Bund spread widening so quickly to +127bp is quite an alarming move – potentially adding some risk premium into the euro as well as constraining the European Central Bank's (ECB) tightening cycle."

"On the subject of the ECB, we hear from Joachim Nagel, Christine Lagarde and Isabel Schnabel among others today. Expect them to hold the hawkish line for the time being, but the chances of the ECB 'out-hawking' the Fed seem slim at this stage."

"If the OAT-Bund spread widens much further and US data stays strong, we will have to prepare for a drop into the 1.11-12 area."

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

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FXStreet Insights Team

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