Euro makes a run at 1.1500, December hike groundwork is set to continue

Matthew Ryan, CFA Ebury

The euro is making a run at the 1.15 level on the US dollar, and could test that level should the Fed strike a hawkish note later today.

The continued rise in global oil prices due to the Iran war re-escalation is clearly bearish for the common currency due to the bloc’s status as a net energy importer.

Higher US Treasury yields would ordinarily weigh on the EUR/USD pair as well, though European bonds have sold off to a similar extent as their American equivalents so the impact on the pair should be contained so long as we don’t see a full blown rout.

Tuesday’s ZEW economic sentiment data was a slight disappointment, though this failed to rock the boat too much for the euro. Industrial production figures for July, out this morning, is expected to show modest contraction in activity, but the main focus will be on a handful of speeches from ECB officials this afternoon - including from President Lagarde.

We expect Governing Council officials to continue laying the groundwork for a December rate hike in the coming weeks after ECB “sources” strongly suggested that one was on the way following last week’s policy decision.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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