The Euro-to-Pound exchange rate has been boosted by news of progress towards a deal on German defence spending.
EUR/GBP rose to 0.8439 (GBP/EUR down to 1.1850) as "the euro benefits from news out of Germany," says a currency specialist we follow.
"EUR/GBP buoyed by deal tip from German Greens co–leader," says Robert Howard, a Reuters market analyst.
This is after German Greens co-leader Franziska Brantner (pictured above) said she is hopeful of a defence deal this week.
0.8439 is the highest level since January 2024 for EUR/GBP, with gains coming amidst a significant reappraisal of Germany's economic outlook ever since politicians said it was time to loosen the country's long-standing debt brake.
Incoming Chancellor Freidrich Merz said Germany must borrow more to invest in defence and infrastructure as it faces the challenges of Russian expansion and U.S. isolationism.
The current governing coalition of Merz's CDU-CSU, SPD, and the Greens must pass the constitutional changes in the current parliamentary session, as the coalition enjoys a three-quarters majority.
Above: EUR/GBP at daily intervals.
When the new Bundestag parliament is formed, the coalition will not command the three-quarters needed to alter the constitution and pursue changes to the debt brake.
For this reason, analysts warn that Germany and the Euro still have some hurdles to overcome.
However, the Greens hinted on Monday that they would be willing to enter a deal with CDU-CSU and SPD.
There is an element of relief for the Euro in the latest headlines; as Brantner also warned yesterday, "we will not let Friedrich Merz and Lars Klingbeil [of the Social Democratic Party] abuse a difficult situation in European security."
The concerns relate to the proposed constitutional changes to ease strict borrowing limits in the area of defence and establish a €500BN fund for infrastructure.
"Rather than a definitive rejection, the Greens are probably laying the foundation for negotiations where it aims to push its own climate measures," says Sam Hill, Head of Market Insights at Lloyds Bank.
SPD leader Lars Klingbeil said he took its concerns about changing the country’s constitution "very seriously" and promised to continue discussions to convince the Greens.
"From the conversations I had with them last night, I'm not surprised that we’re not yet on a common denominator, but the priority now is to get together and have confidential discussions," he said.
Progress towards a deal looks to be on course, opening the door to a German economic recovery as the U.S. economy faces its own set of challenges under Donald Trump.
A pivot away from U.S. economic exceptionalism is fuelling demand for euros, sending Euro-Dollar to its highest level since November.
"The newsflow is significant enough to now shift us into an outright EUR/USD bullish view," says George Saravelos, lead FX strategist at Deutsche Bank.