The ongoing discussion among EU leaders for a joint fund for defence spending is unlikely to drive much support for European currencies. That’s because the trigger is US President Donald Trump’s threat to scale back military support for NATO borders in Europe, which is hardly a net-positive development for local currencies, ING’s FX analysts Francesco Pesole notes.

EUR/USD to trade 1.02 in the end of the quarter

"It is equally far-fetched to hope any such EU coordination on common spending will be replicated on the fiscal side to counter US protectionism. The eurozone’s structural unpreparedness to face the economic consequences of Trump’s tariffs continues to form the basis of our bearish EUR view. Market pricing on the European Central Bank is around -75bp for year-end, but we think four more cuts this year (to 1.75%) will be warranted."

"EUR/USD has obliterated the negative risk premium related to US tariffs. Remember in mid-January that amounted to 3% of undervaluation, according to our short-term fair value model. It seems that the Ukraine-Russia peace negotiations have offset the tariff threat in FX."

"However, the latter likely have more tangible implications for the ECB, the economy, and by extension the euro, and we therefore favour a lower EUR/USD. Our forecast for the end of this quarter is 1.02."

Source: Fxstreet