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ING Sees Downside Risks for EUR/USD Despite ECB Hike Call
Confirmed
In Short: ING's Francesco Pesole expects EUR/USD to face downside risks this week despite the ECB's projected December rate hike.
USD/JPY eased below 157.00 in Asia on Monday, weakened by modest Japanese Yen strength amid potential intervention risks following Friday's BoJ rate check, according to FXStreet.
Francesco Pesole from ING stated that despite political noise in Germany and an additional ECB hike expected in December, ING maintains its EUR/USD profile with a year-end target of 1.160. He noted that similar front-end pricing for EUR and USD is expected, with dovish repricing anticipated due to lower energy prices.
Pesole highlighted that the dovish repricing should be similar in size since both central banks are likely to make only one more hike this year, followed by a prolonged pause. He added that lower USD rates tend to positively impact global risk sentiment, which could slightly boost EUR/USD.
However, Pesole emphasized that EUR/USD faces mostly downside risks this week, especially if Brent crude prices rise or the probability of a Fed rate hike increases. He noted that unless inflation delivers significant downside surprises, conditions appear favorable for the DXY to return to 99.0.
Think reported that the ECB's well-telegraphed 25bp hike may not signal enough commitment to further tightening to validate the market's hawkish pricing, leaving EUR/USD exposed to downside risks.
What this adds
The report adds that EUR/USD faces downside risks despite the ECB's projected December rate hike, with lower energy prices potentially boosting EUR/USD but not enough to offset other factors.
Background
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What's confirmed
- USD/JPY eased below 157.00 in Asia on Monday, weakened by modest Japanese Yen strength amid potential intervention risks following Friday's BoJ rate check, according to FXStreet.
- Francesco Pesole from ING stated that despite political noise in Germany and an additional ECB hike expected in December, ING maintains its EUR/USD profile with a year-end target of 1.160. He noted that similar front-end pricing for EUR and USD is expected, with dovish repricing anticipated due to lower energy prices.
- Pesole highlighted that the dovish repricing should be similar in size since both central banks are likely to make only one more hike this year, followed by a prolonged pause. He added that lower USD rates tend to positively impact global risk sentiment, which could slightly boost EUR/USD.
- However, Pesole emphasized that EUR/USD faces mostly downside risks this week, especially if Brent crude prices rise or the probability of a Fed rate hike increases. He noted that unless inflation delivers significant downside surprises, conditions appear favorable for the DXY to return to 99.0.
- Think reported that the ECB's well-telegraphed 25bp hike may not signal enough commitment to further tightening to validate the market's hawkish pricing, leaving EUR/USD exposed to downside risks.
What's still developing
- That leaves EUR/USD exposed to downside risks, particularly as the dollar may find additional support after yesterday’s smaller-than-expected Treasury buyback announcement Poor price action for the dollar persisted for most of yesterday.
- We feel these are figures that can – if anything – slightly reinforce market conviction on a September hike: pricing is currently 16bp.