Euro: How is a hawkish ECB limiting losses against the US Dollar? - ING

The Euro continues to carry a risk premium as French spread premia persist and energy prices remain elevated. Against this backdrop, ING’s Francesco Pesole says EUR/USD is seeking to build support around 1.1200 following a strong opening to the week. While a Democratic sweep could lend support, he does not expect a substantial shift in sentiment. Meanwhile, recent hawkish commentary from the European Central Bank (ECB) signals that at least one further rate hike is needed.

Can a hawkish ECB offset the Euro’s persistent risk premium?

"EUR/USD is looking to establish support at 1.1200 after a good start to the week. A Democratic sweep at the midterms today could help, but we don’t expect radical mood changes in the pair."

"French spreads didn’t benefit from lower oil prices yesterday, signalling levels above 150bp are the new normal now. It therefore remains hard for the euro to shake out the lingering risk premium, and much more tangible progress is needed for oil to trade sustainably lower from here."

"In the eurozone, focus will be on a number of ECB speakers today. Since last week’s meeting, we’ve heard some hawkish comments, endorsing market expectations that at least another hike is needed."

"Elevated energy prices suggest there is little room for a clear dovish current to emerge yet."

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