EUR/USD: Political risks tilt against Euro – Commerzbank

Commerzbank’s Thu Lan Nguyen revises the EUR/USD outlook as US political risk recedes and Euro area risk rises. With Trump constrained by a divided Senate, the Dollar faces fewer politically driven easing threats, while French elections and Euro area debt concerns weigh on the Euro.

Dollar downside risks seen diminishing

"Without a majority in the US Senate, Trump can no longer easily reshape the Federal Reserve Board according to his preferences."

"As a result, the risk of politically induced monetary easing has fallen significantly, removing an important headwind for the dollar."

"All in all, we expect the balance of political risks to shift increasingly towards the euro. Last year’s “Liberation Day”, when the US administration introduced reciprocal tariffs, marked a turning point for the FX market: suddenly, the US dollar was perceived as the politically riskier of the two currencies. Since the outbreak of the war with Iran, however, we have seen a return towards the risk assessment that prevailed before Liberation Day."

"We expect this trend to continue, with EUR-USD gradually but steadily returning to the levels seen just before "Liberation Day". We have therefore lowered our forecast sharply and now expect EUR-USD to end 2027 at 1.06, down from our previous forecast of 1.18."

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