The euro continued to appreciate, surpassing $1.17 and reaching a fresh 2021 high, bolstered by a general weakness in the dollar. The ceasefire between Iran and Israel is holding, boosting risk sentiment, while concerns about the Federal Reserve’s independence emerged after reports that President Trump is considering an early appointment for the next Fed chair, putting pressure on the greenback.
In parallel, NATO’s decision to increase defense spending from 2% to 5% of GDP by 2035 has raised expectations that countries, particularly Germany, will ramp up borrowing to meet these targets. On the fiscal front, Germany has approved its 2025 budget and 2026 fiscal framework, which includes record investment plans aimed at stimulating growth. These plans feature increased spending and faster implementation than originally anticipated. Meanwhile, analysts continue to predict a 25-basis-point rate cut by the ECB before the year’s end.
