The German government has collapsed. The bone of contention in the end was the use of fiscal stimulus and disagreement over the suspension of the German debt brake, ING’s FX Analyst Chris Turner notes.
New German government may fight better against Trump
“This puts into stark relief the challenge for the European economy faced by a looming trade war and weak domestic demand. The prospect of a new German government next March might actually increase the chance of some fiscal stimulus and provide better ammunition for Europe to withstand Trump's trade agenda in 2025.”
“EUR/USD found support below 1.07 yesterday – perhaps not a surprise after a peak-to-trough drop of 2.3% on the day and even moving more aggressively than the FX options market had been pricing.”
“While profit-taking on EUR/USD short positions could drag it back to the 1.0800 area, we tend to think EUR/USD will tend to trade in the lower half of its 1.0550-1.1150 two-year range for the rest of the year. For example, it will be interesting to see what Trump's election means for European investment intentions – the IMF had noted this as a key negative factor under increased tariffs.”
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