EUR/USD: Political Risks Put Euro at a Disadvantage – Commerzbank

Rising Euro area political risk and easing US political uncertainty have prompted Commerzbank’s Thu Lan Nguyen to revise the EUR/USD outlook. French elections and concerns over Euro area debt are weighing on the Euro. Meanwhile, a divided Senate limits Trump’s scope for action, reducing the threat to the Dollar from politically driven monetary easing.

Dollar Faces Diminishing Downside Risks

"Without a majority in the US Senate, Trump can no longer easily reshape the Federal Reserve Board according to his preferences."

"As a result, the risk of politically induced monetary easing has fallen significantly, removing an important headwind for the dollar."

"All in all, we expect the balance of political risks to shift increasingly towards the euro. Last year’s “Liberation Day”, when the US administration introduced reciprocal tariffs, marked a turning point for the FX market: suddenly, the US dollar was perceived as the politically riskier of the two currencies. Since the outbreak of the war with Iran, however, we have seen a return towards the risk assessment that prevailed before Liberation Day."

"We expect this trend to continue, with EUR-USD gradually but steadily returning to the levels seen just before "Liberation Day". We have therefore lowered our forecast sharply and now expect EUR-USD to end 2027 at 1.06, down from our previous forecast of 1.18."

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