Nomura's FX strategists report that recent gains by the Alternative for Germany (AfD) party in German regional elections have had minimal impact on EUR/USD, as markets perceive these developments as local events with limited national significance [1]. According to Nomura, the FX markets barely registered the AfD's win over the weekend, citing two main reasons: the results were only slightly different from pre-election polling, and the outcome remains confined to local elections without broader national implications [1].
Nomura highlights that EUR/USD continues to be supported by a relatively hawkish European Central Bank (ECB), softer US exceptionalism, and improving Euro area portfolio flows. The strategists note that positioning remains marginally short EUR across a broad range of measures, and they maintain a long EUR/USD stance based on these factors [1].
However, Nomura acknowledges that German and French politics represent downside risks for the euro. They warn that clear negative implications for EUR could arise if AfD's regional success translates into national prominence, particularly if early elections are called and the party appears poised to become the largest in parliament. For instance, if Chancellor Merz were forced out and an early election materialized, EUR could start to see a negative risk premium priced in [1].
Despite the rise of right-wing populism, Nomura argues that threats to leave the EU or the single currency are much less prominent than in the past, suggesting that the euro is somewhat immune to negative political risks for now. Nonetheless, political factors in Germany, France, and to a lesser extent Italy, remain a downside risk to their positive outlook on EUR/USD [1].
CONCLUSION
Nomura's analysis indicates that the euro has remained resilient in the face of AfD's regional election gains, with markets viewing the political risks as contained for now. The EUR/USD is supported by ECB policy and improving euro area flows, but political developments in Germany and France could pose future risks if they escalate to the national level. Overall, the market takeaway is that EUR downside is limited unless regional political shifts become more concrete nationally.