Euro: Downside risks persist against US Dollar – Commerzbank

Commerzbank’s Thu Lan Nguyen notes EUR/USD briefly slipped below 1.12 again, with weakness driven mainly by Euro-specific concerns rather than US rate expectations. France’s fiscal sustainability and Marine Le Pen’s proposals are keeping markets nervous, while FOMC minutes reduced the perceived probability of near-term Fed hikes. Overall, Commerzbank judges near-term risks for EUR/USD as skewed to the downside.

France risks keep Euro pressured

"Yesterday, EUR/USD once again briefly slipped below the 1.12 mark. As was the case late last week, the move was primarily driven by euro weakness. The reason appears straightforward: persistent concerns about France’s fiscal sustainability."

"This view was reinforced by the FOMC minutes released yesterday. While many policymakers continued to favour another rate increase this year, the timing remains uncertain. Moreover, single additional rate hike was mentioned rather than the multiple hikes that markets are still pricing in."

"In the near term, however, attention is likely to remain focused on France. The ambitious fiscal plans unveiled by Marine Le Pen, who currently leads in presidential election polls, provided only temporary relief. One reason may be that she simultaneously called on the ECB to intervene in order to give euro area governments greater fiscal room for manoeuvre."

"At the same time, France’s central bank governor downplayed the need for ECB intervention and spoke out against political pressure on the central bank. Against this backdrop, continued market nervousness comes as little surprise. A lasting solution to the issue remains elusive for now. As a result, near-term risks for EUR/USD remain skewed to the downside."

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