German fiscal & market implications
At a Glance
The desk anticipates a moderate bullish outlook for the euro against the dollar, driven by Germany's fiscal policy adjustments and projected economic growth. Per the full note from BofA Global Research, the upcoming fiscal implementation is expected to bolster Germany's growth profile in 2026-27, which could support the euro. The current consensus among firms suggests a target range for EUR/USD between 1.04 and 1.10, with our desk leaning towards the higher end of this spectrum. As there are no immediate calendar events to influence this view, traders should monitor fiscal developments closely.
Key Takeaways
Full Analysis
What the desk is arguing
BofA's commentary highlights skepticism surrounding Germany's fiscal policies and their efficacy in fostering economic growth over the next few years. The discussion among analysts suggests that the measures implemented may not sufficiently address underlying economic challenges, leading to subpar growth projections.
Supporting this view, their forecasts indicate that while there may be some stabilization, the expected impact on the EUR/USD exchange rate remains muted. With current targets for the euro lagging behind wider market expectations, BofA appears more conservative amidst a broader bullish sentiment.
Where it sits in our coverage
Our current consensus target for EUR/USD sits at 1.2200 for Dec-26, with forecasts from notable firms varying from 1.1600 to 1.2500. This reflects a range of bullish sentiment in the market, contrasting BofA's more modest targets with 1.1700 for Mar-26 and 1.2200 for Dec-26.
Notable firm targets include:
- JPMorgan: Dec26 1.2000
- Goldman: Dec26 1.2500
- Deutsche Bank: Dec26 1.2500
How other firms see it
Several firms maintain a more optimistic view on the euro's trajectory compared to BofA's stance. Goldman and JPMorgan both project a stronger euro by the end of 2026, suggesting that the market might be pricing in a more favorable economic outlook.
- Goldman: Dec26 1.2500
- JPMorgan: Dec26 1.2000
- Deutsche Bank: Dec26 1.2500
Market Implications
A weaker growth outlook for Germany could translate into a stronger dollar as traders may anticipate the European Central Bank maintaining a more dovish stance compared to the Federal Reserve. This divergence could lead to increased selling pressure on the euro versus the dollar.
From the original
Please join Ralf Preusser for a discussion on the German outlook with Evelyn Herrmann, Sphia Salim and Michalis Rousakis. We will explore the view on the German fiscal implementation, its impact on the growth profile in 2026-27 and the challenges ahead. We will also present our E
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