German fiscal & market implications

Bank of America (BofA) has raised concerns about Germany's fiscal implementation and its potential repercussions on economic growth. Their analysis indicates that the fiscal measures taken may not significantly boost growth in 2026-27, which could impact the euro's strength against the dollar.

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

How firms align with this view

consensus1.2200range1.1600–1.2500

Aligned with the desk view

JPMDec26 1.2000 GSDec26 1.2500 DBDec26 1.2500

Contrary positioning

BofADec26 1.2200

Key takeaways

01BofA expresses caution regarding the effectiveness of Germany's fiscal measures.
02The bank's EUR/USD targets are more conservative than the broader market consensus.
03Several other firms maintain a more bullish outlook for the euro.

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.

Risks to this view

The primary risks include unexpected fiscal stimulus that could enhance growth prospects in Germany, which might lead to an upward revision in euro forecasts. Additionally, global economic shocks could disproportionately affect the eurozone, compounding the challenges faced by the euro as traders reassess their positions.

BofA EUR/USD

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 EUR rate and German yield forecasts as well as our takeaways for the EURUSD outlook.

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