⚖️🇩🇪🇺🇸Differentials Continue to Cap Euro Upside: Cable FX Macro

• As of mid-June 2026, the 10-year US Treasury yield is around 4.46% and the 10-year German Bund yield hovers around 2.96%, resulting in a transatlantic spread of approximately 150 basis points. This spread remains one of the key medium-term drivers for EUR/USD. EUR/USD usually declines when the US 10Y-Bund spread widens (US yields exceed Bund yields) because USD assets look more appealing and the outlook for a stricter US monetary policy becomes more pronounced.

• Conversely, a tightening of the spread, whether on the back of higher bund yields or lower US yields, tends to be positive for EUR/USD as it reduces the interest rate advantage of holding dollars. The yield spread has had a strong inverse relationship to EUR/USD historically and often acts as a leading indicator when the differential moves materially.

• Risk sentiment, growth differentials and ECB-Fed policy divergence also affect the pair. In the current environment, the still wide 150bp spread continues to act as a structural headwind for the euro, with markets pricing potential Fed hikes later in 2026.