EUR/USD slides on warning over German government finances. Accordingly, economists at Sotiabank expect the eurozone economy to lag behind its peers, weakening the common currency. 

Germany's government finances are in a critical state

“The German audit office found that the government’s finances are in a ‘critical state.’ The auditor’s report means that the incoming SPD-led government may face resistance to turning on the spending taps over 2022 – thus delaying the country’s, and the Eurozone’s, economic recovery.”

“We think the Eurozone’s economic underperformance will be a key driver of EUR losses against the USD over the coming year to decline into the low 1.10s (our end-2022 forecast is 1.12).”

“We do not foresee an ECB hike until late-2023 at the earliest if everything goes as planned – including continuing fiscal stimulus.”