EUR/USD: Politicians have a chance to be a game changer for the euro – Rabobank

The EUR has clung on to most of the gains made at the start of the week on the news of a Franco/German agreement for a new EUR500B fund to support the recovery in the EU via grants. This was followed by reports that the European Commission will propose a recovery fund of more than EUR 1trn made up of both loans and grants, per Rabobank. 

Key quotes

“If the EU authorities can demonstrate a heightened degree of political coordination, it could be a game changer in terms of the outlook for the EUR. However, it is still too early to come to this conclusion.”

“While the risk of a dip towards EUR/USD 1.05 on a 3-month view may have been reduced, previous crisis have highlighted that European politicians are often only pushed into compromise agreements when tensions between them become untenable. Consequently, we view it as too early to alter this forecast.”

“The European Commission’s proposed recovery fund will reportedly be more than EUR 1 trn and will include a mix of loans and grants. The plan is expected to be laid out on May 27th as part of the seven year joint EU budget proposal. The reactions to this from across the EU could be crucial in assessing the outlook for the EUR in the coming months and beyond.”