The nomination of Scott Bessent, an experienced financier from Wall Street, as the Secretary of the Treasury in the US has led to a calming reaction on global markets. This decision has reduced investors’ concerns about more radical nominations in the administration of Donald Trump. Bessent, known for his moderate approach, has announced cautious actions regarding trade tariffs and their negotiation, which has limited the tensions surrounding the “America First” policy.
On the foreign exchange market, the decision to nominate Bessent has contributed to a 0.6% decrease in the dollar index, which is the most significant weakening from the past two weeks. As a result, currencies such as the euro, yen, Korean won and currencies of Eastern and Central Europe have gained. Simultaneously, the yield on 10-year US bonds dropped by six basis points, reaching 4.34%, which also affected the weakening of the dollar.
Germany, the largest economy in the eurozone, is currently struggling with a simultaneous political and economic crisis. Economic stagnation, capital outflow (EUR 260 billion since 2021) and a lack of cheap Russian gas are weakening the country’s economic foundations. At the same time, the trade tariffs announced by Donald Trump could further harm German exports.
Despite these challenges, Germany can use its strong fiscal position – a public debt level of 60% GDP offers room for increasing indebtedness to finance investments. The planned reform of the so-called “debt brake” and higher expenditures on modernizing the infrastructure can strengthen the economy, although this requires political consensus, which can be difficult considering the growing support for extreme parties.
The current events may have a significant impact on the EURUSD currency pair. The weakening of the dollar resulting from Bessent’s nomination, combined with positive expectations for potential investments in Germany, could short-term support the euro against the dollar.
In the longer term, however, the dollar remains backed by strong US economic fundamentals, such as solid GDP growth and an advantage over the weaker economic condition of Europe. Short and medium-term changes in the EURUSD pair may depend on further political decisions in the US and Germany. If Germany manages to achieve political consensus on investment and reforms, the euro could find solid support. At the same time, Scott Bessent’s more moderate trade policy may favour financial market stability, although the fundamentals supporting the dollar remain strong. The current EURUSD exchange rate is 1.0450.
Krzysztof Kamiński Oanda TMS Brokers
Source: https://ceo.com.pl/eurusd-polityka-usa-i-niemiec-ksztaltuje-przyszle-kursy-22125
