BUZZ-COMMENT-Fed and ECB may be overshadowed as EUR/USD drivers

Jan 29 (Reuters) - EUR/USD extended its drop from the Jan. 27 high and struck a 4-session low Wednesday, showing less deference to traditional correlations with rate differentials as lingering trade issues as well as political uncertainty in Europe appear to be holding sway.

Germany's government expects exports to decline by 0.3% in 2025 and economic growth at +0.3% down from prior forecasts of +1.1%.

Doubts about the survival of France's government increased Wednesday after budget talks neared collapse due to Socialist lawmakers protesting remarks about immigration.

U.S. December trade data may fuel speculation President Donald Trump will impose tariffs after the report indicated a sharp widening in the trade deficit.

Those influences appear to be overshadowing the dollar's declining yield advantage over the euro.

Fed SRAM26 and ECB FEIZ5 terminal rate spreads are trading at their tightest since Nov. 5 while German-U.S. 2-year yield spreads US2DE2=RR also trade near early November tights.

Positive correlations between EUR/USD and rate differentials have fallen apart for now, which suggests investors may be placing less weight on central bank policy and more on trade and political issues.

But, if trade and political tensions were to ease, EUR/USD might rally to catch up with tighter spreads.

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