Contrary to typical risk-off behavior, a financial shock originating in the US would likely be positive for the EUR/USD exchange rate. This is because it creates more room for the US Federal Reserve to reprice its policy downwards and can trigger repatriation flows out of US equities.

A strategy for US investors to counter domestic market risk involves buying European bonds and not hedging the currency. This combines a modest ~3% bond yield with an expected ~7% appreciation of the euro against the dollar, driven by diverging central bank policies.

Contrary to the belief that US strength harms the Euro, historical data shows the EUR/USD pair performs best when growth outlooks for *both* regions are being upgraded. This is because the Euro is fundamentally a pro-cyclical 'growth currency,' benefiting from a global risk-on environment even when the US also thrives.

Despite negative political headlines, the Euro/Dollar spot rate has fallen below its fair value of 1.17, as determined by real yield differentials. This marks a significant shift, suggesting the risk/reward is once again becoming attractive for medium-term bulls on the currency.

Despite a sizable fiscal boost, Germany is not expected to experience rising term premium. The country's debt-to-GDP ratio remains low, and strong demand from the private sector and foreign investors is forecast to easily absorb the increased bond supply, containing upward pressure on yields.

While J.P. Morgan maintains a bullish bias on the Euro, it's not a high-conviction trade for capturing global growth. Its primary value is offering asymmetric upside with bounded downside (around 1.15). The currency is positioned for "explosive moves" if US data or policy falters, making it more of a strategic hedge.

The European Central Bank is not passively letting the euro's influence grow; it's actively working to enhance its global standing. The goal is to position the euro as a significant reserve currency in an emerging multipolar monetary system, competing with the US dollar and China's yuan.

While gross Euro area sovereign bond issuance is set for a new record in 2026, this is primarily driven by Germany. Net issuance for the region will remain similar to 2025 levels, as deficits in other countries are flat or declining, mitigating overall supply pressure.

Despite Germany's fiscal expansion driving record Euro area gross issuance, the resulting €60 billion increase in German bonds is considered insignificant for a triple-A issuer. Analysts argue this amount is easily digestible and does not warrant concerns about rising term premium, especially when compared to the scale of U.S. Treasury issuance.