EUR/USD faces modest reassessment amid trade and political uncertainty
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The euro’s recent upside momentum appears to be fading, as market sentiment shifts due to looming U.S.-EU trade tariffs and political uncertainty in Germany. Analyst highlights that EUR/USD risk reversals have softened, moving from a bullish +0.45% skew for euro calls to -0.14% in favor of euro puts—suggesting reduced investor appetite for euro upside.
One major factor weighing on the euro is the uncertainty surrounding U.S. tariffs set to take effect in early April. With increasing tensions between European and U.S. leadership, retaliatory trade measures could have a significant economic impact on the eurozone, further pressuring the currency.
Political risks in Germany also remain a focal point. CDU leader Friedrich Merz is negotiating with the Greens to secure support for a €500 billion infrastructure package and constitutional debt-brake reform. Any signs that the Greens may block the bill ahead of next Tuesday’s crucial vote could create additional intraday volatility for EUR/USD.
Meanwhile, Fitch’s rating review of France, due after market close today, adds another layer of uncertainty. While a credit downgrade from AA- may still be premature, investors remain cautious about eurozone debt dynamics. Interestingly, eurozone government bond spreads remain tight to German Bunds, despite persistent economic risks.
On the other hand, the soft U.S. consumer confidence data presents an upside risk for EUR/USD, as any signs of weaker U.S. economic momentum could fuel speculation about further Federal Reserve rate cuts, supporting euro strength.
For now, EUR/USD is likely to trade within a 1.0810–1.0880 range, with near-term direction dictated by developments in U.S.-EU trade policy, German political negotiations, and upcoming U.S. economic data releases.
One major factor weighing on the euro is the uncertainty surrounding U.S. tariffs set to take effect in early April. With increasing tensions between European and U.S. leadership, retaliatory trade measures could have a significant economic impact on the eurozone, further pressuring the currency.
Political risks in Germany also remain a focal point. CDU leader Friedrich Merz is negotiating with the Greens to secure support for a €500 billion infrastructure package and constitutional debt-brake reform. Any signs that the Greens may block the bill ahead of next Tuesday’s crucial vote could create additional intraday volatility for EUR/USD.
Meanwhile, Fitch’s rating review of France, due after market close today, adds another layer of uncertainty. While a credit downgrade from AA- may still be premature, investors remain cautious about eurozone debt dynamics. Interestingly, eurozone government bond spreads remain tight to German Bunds, despite persistent economic risks.
On the other hand, the soft U.S. consumer confidence data presents an upside risk for EUR/USD, as any signs of weaker U.S. economic momentum could fuel speculation about further Federal Reserve rate cuts, supporting euro strength.
For now, EUR/USD is likely to trade within a 1.0810–1.0880 range, with near-term direction dictated by developments in U.S.-EU trade policy, German political negotiations, and upcoming U.S. economic data releases.