Macro & Markets: Europe’s energy bill meets Europe’s debt bill

Europe’s energy shock and fiscal fragmentation will keep the euro under pressure while the dollar benefits from wider rate, capital-flow and risk-premium advantages.

• The euro area, a net energy importer, is suffering a terms-of-trade shock while the US benefits from being a net energy exporter; oil is around USD 100 per barrel, European gas prices remain elevated, and euro-area storage is below its seasonal norm.
• Euro-area activity has recovered from a composite PMI of 49.1 in the second quarter to 52.0 in the third quarter, but the longer energy prices stay high, the greater the risk to real incomes, demand and inflation.
• Nordea expects two further ECB hikes versus three priced by markets, while it expects two more Fed hikes; this rate differential supports the dollar because US core PCE inflation is 3.0% and unemployment is 4.1%.
• France’s 10-year OAT-Bund spread reached 145bp, versus an average of about 75bp over the previous year, as markets questioned the country’s ability to stabilise debt ahead of the April-May 2027 presidential election.
• Nordea keeps its EUR/USD forecasts at 1.14 at end-2026, 1.12 in the first half of 2027 and 1.17 in the second half of 2027; it expects US debt concerns to matter more later, while European fiscal risks dominate in the near term.

Takeaway: The risks around the forecasts are tilted toward further dollar strength, although falling energy prices, political pressure for Fed easing, an AI-market correction or a credible French budget package could invalidate the view.