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German Stimulus Sparks Euro Surge
Germany’s fiscal expansion—aimed at boosting military and infrastructure spending—triggered a bond market sell-off, with 10-year German yields surging to their highest level since October 2023. This rise in borrowing costs spilled over into other European bond markets, reinforcing expectations that fiscal policy, not just ECB easing, will shape the eurozone’s economic trajectory.
The impact on EUR/USD was immediate. Traders anticipating higher growth and inflation from fiscal stimulus shifted away from the euro’s bearish outlook, leading to a decisive breakout above the 1.0725 resistance level. The ECB’s rate cut to 2.5% from 2.75% followed, but by that point, the market had already adjusted to the shifting fiscal landscape.
Rate Cut and Trade Risks Add Complexity
Despite the euro’s rally, risks remain. The ECB lowered growth forecasts to 0.9% for 2025, citing trade uncertainty and weak investment. The potential for a 25% tariff on EU exports from a Trump-led U.S. administration could weigh on European manufacturing, weakening economic momentum.
ECB President Christine Lagarde has also warned that rising energy prices could delay inflation’s return to 2%, limiting the ECB’s room for further cuts.
Technical Outlook: EUR/USD Breaks Key Levels
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