EURUSD rotation
EURUSD has made a dramatic U-turn from the inevitable grind lower to parity most analysts were predicting. A stronger Dollar come year end is still not being removed from the base case by most. However, its current momentum higher stands in defiance of that outcome. However, as we are seeing now, there are significant risks to the stronger Euro narrative that is emerging. EURUSD, whilst the most closely watched and heavily traded pair in the market, is remarkably useless at one thing: telling us anything about the value of the Euro and Dollar simultaneously. Despite pushing higher yesterday, a glance at other crosses reveals neither currency was favoured.
The rotation into the Euro was bolstered by a mildly hawkish ECB meeting last week. Thanks to a change of language in the policy statement, as expected, the market was left with the impression that the governing council believes interest rates are no longer significantly restrictive. Coupled with the expectation of a proliferation of German and European debt issuance, this policy shift reinforced the prospect of higher European debt yields. Most notably in the case of the Green’s party’s objection to Merz’s defence spending plans, the stronger Euro narrative is being challenged.
Critics of Germany’s Green party will argue that their objection to European defence spending is motivated by frustrations of not being involved in the fiscal design of the preliminary plans. Proponents of the Greens will argue that vowing to do whatever it takes on spending and defence without having formed a government yet and prior to becoming Chancellor is reckless. Regardless, on both sides of the Atlantic there are significant and fragile risks to both the Euro and Dollar that might be poorly identified within the spot value of EURUSD.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Two cuts down
Charles Porter
Thu 30 Oct 2025
Two cuts down The Federal Reserve cut the target Fed funds rate by 25-basis points again last night. This brings the benchmark range down to a 3.75-4% banding. This move had been widely expected, but that does not mean it did not have any market impact. As of market open today, the dollar continues to […]
Daily Brief – A glimmer of (European) hope
Charles Porter
Tue 28 Oct 2025
A glimmer of (European) hope The ECB has made significant progress in cutting rates towards an accommodative level. The Eurozone saw evidence of cooling inflation much sooner than many economies and has been able to respond accordingly, cutting the deposit rate to 2%. The ECB will meet again this Thursday to publish its latest monetary […]
Daily Brief – Inflation’s peak?
Charles Porter
Thu 23 Oct 2025
Inflation’s peak? Yesterday’s publication of the latest UK inflation report will be welcomed by households and the government alike. The report released prior to the market open yesterday showed UK inflation to September remained stable month-on-month. That might not sound like a whole lot at face value, but it is in fact critical that headline […]
