Euro: French spread widening threatens EUR/USD range – ING
ING’s Chris Turner flags that EUR/USD has been driven to yearly lows mainly by a hawkish reassessment of Federal Reserve policy, but warns French OAT‑Bund spread widening is an emerging concern.
ING analyst Chris Turner warns that the widening spread between French government bonds (OAT) and German Bunds is an emerging concern that may threaten the EUR/USD exchange rate. The pair has been driven to yearly lows mainly by a hawkish reassessment of Federal Reserve policy, rather than any independent weakness in the euro. The French OAT-Bund spread has widened to an alarming +127bp, potentially adding risk premium to the euro and constraining the European Central Bank's tightening cycle.
While the ECB is expected to hold a hawkish stance, the chances of it outpacing the Fed seem slim. If the spread widens further and US data remains strong, the euro could drop into the 1.11-12 area.
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