The global FX market saw decisive shifts on Monday, driven by fiscal developments in Germany, optimism surrounding geopolitical diplomacy, and sharp movements in sterling and yen crosses. Here’s what you need to know:
EUR/USD – Holding Steady Ahead of German Fiscal Vote
The euro traded firmly at $1.0919, underpinned by expectations of robust European fiscal spending and geopolitical tailwinds. Attention now turns to Germany’s Bundestag vote on Tuesday, where lawmakers are set to decide on reforms to the debt brake to enable increased infrastructure and defense spending under Chancellor-in-waiting Friedrich Merz. If approved, this could significantly improve Europe’s growth outlook.
Swissquote Bank analyst Ipek Ozkardeskaya noted that higher German fiscal outlays could support broader Eurozone expansion, lending strength to the euro. Meanwhile, investor sentiment is also buoyed by potential progress on the Russia-Ukraine peace talks, with President Trump and Vladimir Putin scheduled to hold direct discussions.
GBP/USD – Sterling Surges to 5-Month High
The British pound surged to $1.30, its highest level in five months, erasing all post-U.S. election gains by the greenback. The sharp reversal reflects a combination of dollar weakness and renewed sterling optimism ahead of key central bank decisions.
The Bank of England is widely expected to hold rates at 4.50% on Thursday, mirroring the Federal Reserve’s stance a day earlier. However, sterling is gaining support from stable economic indicators and the market’s anticipation of a less dovish BoE trajectory compared to its peers.
Technically, immediate resistance lies at $1.3050—a potential double-top level. A decisive break above could open the path toward $1.3422, a level last tested in early September. Cable bulls remain firmly in control as rate cut expectations cool and political clarity emerges.
USD/JPY – Bullish Momentum Builds Above 149.77
The yen softened modestly, with USD/JPY climbing 0.4% to 149.77, as short-term bullish momentum builds. The pair could test the critical resistance zone between 150.60 and 151.45 provided it maintains strength above 148.40.
A confirmed bullish divergence on MACD and signs of a weekly stochastic crossover from oversold territory reinforce the bullish case. Market participants are closely watching how BOJ policy unfolds, especially against the backdrop of potential domestic political changes.
BOJ may continue its rate-hike path, regardless of political uncertainty. Given inflation concerns and Trump’s criticism of yen weakness, Japan’s next leader is unlikely to advocate a return to monetary easing. Any fiscal expansion or tax cuts resulting from political shifts could drive long-end JGB yields higher—a factor that FX traders should not ignore.
Conclusion
As the dollar faces headwinds from policy divergence and geopolitical tensions, the euro and pound have seized the opportunity to reclaim ground, while the yen shows signs of a tactical rebound supported by technical momentum and rate path clarity. The upcoming German vote, central bank decisions, and diplomatic developments will set the tone for FX markets in the sessions ahead.
