Euro: Political risks seen contained for now – Nomura
Nomura’s FX strategists note that recent AfD gains in German regional elections have had little impact on EUR/USD so far, as markets see them as local events with limited national implications.
Nomura's FX strategists suggest political risks are currently contained for the euro, at least in the short term. Recent gains by the Alternative for Germany (AfD) in German regional elections have not significantly impacted EUR/USD, as markets view them as localized events with minimal national implications. The analysts attribute EUR/USD's strength to a relatively hawkish European Central Bank (ECB), softer US exceptionalism, and improving euro area portfolio flows.
However, they acknowledge German and French politics as potential downside risks. Positive political developments for the euro would likely require a more concrete AfD success at the national level, particularly if early elections are called and the party appears poised to become the largest in parliament. If this happens, EUR could begin to experience negative risk premium pricing.
The analysts argue that while the rise of right-wing populism still carries nationalist overtones, euro area nations have less concern over exiting either the EU or the single currency compared to the past. The euro is expected to benefit from the ECB's hawkish stance, a decline in US exceptionalism, a shift in portfolio flows into the euro area, and a marginal short positioning on EUR across various measures.
Despite political factors posing a downside risk, the analysts maintain a long position on EUR/USD, highlighting the single currency's advantages compared to other central banks, such as the Federal Reserve.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
