The Euro (EUR) slipped as short-dated US yields dominated market action, overshadowing Schnabel’s supportive remarks. While lower energy prices and Germany’s new EUR52bn spending package brighten the medium-term outlook, EUR/USD faces near-term pressure ahead of the Fed decision and renewed French political risks, ING's FX analyst Chris Turner notes.

German fiscal push, falling energy prices support EUR outlook

"Schnabel's supportive remarks about the euro were drowned out by the reaction to short-dated US rates yesterday. EUR/USD ended a little lower. The background environment for the euro is a little more supportive, however. Energy prices continue to tumble and the German parliament has today voted for a EUR52bn military spending package. German fiscal stimulus is for real and should really start to make a difference to eurozone growth in the second half of 2026."

"The rise in short-dated euro rates can be well justified, but the next leg for eurozone rates may be more curve steepening – i.e. rate rises happening more at the long end of the curve. There is also the small matter of the Dutch pension reform, which looks set to deliver much volatility to the long end of the curve at the start of 2026."

"EUR/USD will struggle to make gains ahead of tomorrow night's Fed decision and could in fact come lower should French politics make a re-appearance. Failure to pass a social security budget in the French parliament today would be greeted negatively by markets and could re-insert some political risk back into the euro. 1.1585/90 could be the target for EUR/USD should the French vote fail."