Euro: Elusive recovery prospects against US Dollar – ING

Francesco Pesole at ING observes that EUR/USD has moved back above 1.120 on Dollar softness, but the Euro still struggles against other European currencies as markets keep pricing a French fiscal premium. He argues that French political and bond-market risks may persist, and ING still sees scope for EUR/USD to test the 1.110/1.112 area in the near term.

French risk caps Euro gains

"Dollar drops may continue to prove short-lived and quite small in size as bond markets remain fragile and the Fed narrative hawkish. French premium isn’t likely to leave the euro very soon, and risks remain of a test of 1.110 in the near term."

"EUR/USD has made its way back above 1.120 on the back of broader dollar softness, but the common currency isn’t showing any signs of recovery against other European currencies (the Swiss Franc, Pound sterling, and Swedish krona)."

"It’s a sign that FX markets aren’t ready to scale back the French fiscal premium. The bond market is giving a similar message, with the 10yr OAT-Bund spread oscillating but closing at 140bp yesterday."

"We still think 1.110/1.112 can be tested in the near term."

"We don’t feel Marine Le Pen’s huge fiscal tightening promise is enough to turn the tide for French bonds, and the euro may keep suffering from the French situation for longer."

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