EUR/USD: Could Downside Risks Push the Pair Towards 1.10? – ING

The Euro is under pressure against the Dollar as Federal Reserve and European Central Bank rhetoric diverges, according to ING’s Francesco Pesole. With widening two-year swap differentials supporting USD, EUR/USD could test 1.100 in the coming days. However, ING sees solid support at that level: a decisive decline below 1.100 would likely depend on markets pricing in a 50bp Fed hike in December.

Can the Euro withstand pressure from rate differentials?

"That contrast neatly captures the current EUR/USD story. The pair's two-year swap rate differential has widened by around 15bp over the past five sessions, and we think the scope for further repricing is greater in front-end USD rates than EUR rates in the near term."

"That leaves EUR/USD at material risk of testing 1.100 in the coming days. We expect that level to offer relatively solid support, not least because the pair is already trading at a nearly 2% discount to our short-term fair value."

"A decisive move below 1.100 would probably require markets to seriously entertain a 50bp December hike. That looks like a stretch for now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)