The proposal from Germany’s expected coalition partners that they plan to relax the country’s debt rules to boost defence spending and support infrastructure has been billed by some commentators as Germany’s whatever it takes moment, Rabobank’s FX analyst Jane Foley notes.
Risk of a move back to 1.05 on a 1 to 3-month view
“We have argued for some time that Germany’s structural economic issues means that the country has a need for a weak exchange rate. The prospect of a large fiscal injection weakens this argument considerably.”
“We have revised up our expectations for the EUR across the board. We have removed EUR/USD1.00 from our forecast table and are targeting EUR/USD at 1.12 on a 12-month view. That said, we do not expect EUR/USD to trade in a straight line this year and see risk of a move back to 1.05 on a 1 to 3-month view.”
