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EUR/USD falls as Fed tightening outweighs ECB backdrop
A widening OAT-Bund spread is being treated as a repricing of France’s known fiscal issue, with DBS saying ECB firewalls are stronger than in the 2012 crisis.
FX-focused commentary from DBS strategist Philip Wee attributes the EUR/USD move to shifting risk balances, with renewed expectations for Federal Reserve tightening playing a larger role than the ECB’s own tightening narrative.
Wee says investors should be cautious about extending current concerns around France into a broader euro area sovereign debt crisis. He points to the widening OAT-Bund spread as a repricing of a known French fiscal problem that depends on a credible response from Paris.
The strategist adds that the situation is different from the 2012 episode, when fiscal revelations in Greece triggered a wider loss of confidence across peripheral Europe. DBS argues that the ECB’s institutional firewalls, including TPI, are stronger today.
The commentary concludes that the four-week decline in EUR/USD reflects risk developments on both sides of the Atlantic, particularly the market reaction to the Fed returning to tightening expectations.
Latest closeEUR/USD 1.126 ▼0.6%