Commerzbank’s Thu Lan Nguyen highlights that the EUR/USD currency pair briefly slipped below the 1.12 mark, with the weakness attributed primarily to euro-specific concerns rather than shifts in US rate expectations [1]. The main driver of this euro weakness is ongoing market anxiety regarding France’s fiscal sustainability, which has kept investors cautious [1].
The release of the FOMC minutes reinforced this dynamic, as the minutes indicated that while many US policymakers still favor another rate increase this year, the timing remains uncertain and only a single additional hike was mentioned, in contrast to the multiple hikes priced in by markets [1]. Despite this, the focus remains on France, where Marine Le Pen’s ambitious fiscal proposals—she currently leads in presidential election polls—have only provided temporary relief to markets [1]. Le Pen’s call for ECB intervention to give euro area governments greater fiscal flexibility has added to the uncertainty, especially as France’s central bank governor has downplayed the need for such intervention and opposed political pressure on the central bank [1].
Given these factors, Commerzbank judges that near-term risks for EUR/USD are skewed to the downside, with market nervousness persisting and no lasting solution to the French fiscal issue in sight [1].
CONCLUSION
Persistent concerns over France’s fiscal outlook and political developments are weighing on the euro, keeping EUR/USD under pressure. With no clear resolution to these issues and continued market nervousness, downside risks for the currency pair are expected to remain in the near term.