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EUR/USD: Recovery faces fundamental doubts.

March 25, 2026

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Commerzbank’s Thu Lan Nguyen notes that EUR/USD has rebounded about two cents from its recent low near 1.14, driven mainly by Euro strength while the Dollar trades sideways. She argues this recovery looks fragile, as Eurozone growth is more exposed to energy shocks and ECB rate-hike expectations appear optimistic relative to US conditions and recent PMI data.

Euro rebound seen as unsustainable

“A look at our currency indices shows that the upward movement in EUR/USD is primarily attributable to a stronger euro. The dollar, by contrast, has moved more or less sideways.”

“I am skeptical about the sustainability of this movement. Sure, I noted just last Monday that interest rate expectations in the US and the eurozone have recently risen in roughly tandem. But that suggests that EUR-USD should trade stably and not drift higher.”

“Added to this is the fact that the eurozone economy is far more exposed to the current energy price shock than is the case for the US. Yesterday’s purchasing managers’ indices demonstrated this once again. While the index for the eurozone fell quite sharply by 1.4 points, its US counterpart fared much better with a decline of only 0.5 points.”

“Against this backdrop, the now quite far-reaching expectations of interest rate hikes by the ECB appear very optimistic.”

“However, for now, the market is likely to feel vindicated in its expectations. After all, in recent days, some cautionary tones have been heard from within the ECB regarding second-round effects of high energy prices on inflation and the need for increased “vigilance.” But words are not deeds.”

“And should there be more signs of a weakening economy, doubts in the market are likely to grow.”