EUR: A leg to the downside – ING

FXStreet Insights Team FXStreet

EUR/USD is understandably lower on the US tariff news in that it slightly re-appraises US growth prospects and the risk premium attached to the US Dollar (USD), ING's FX analyst Chris Turner notes.

EUR/USD may start to reconnect with the interest rate differential

"Is the rules-based order winning out after all? A slight narrowing in the US risk premium on this news could see EUR/USD start to reconnect a little with the interest rate differential story. Here, the two-year EUR:USD swap differential is quite wide at 180bp – levels which last year prompted EUR/USD to trade down at 1.06."

"We think global asset managers did have a shock in April and are seriously looking at their dollar hedge ratios. But the newsflow is mildly supportive for the dollar and there is a scenario where EUR/USD can make it back to the 1.1050 area – consistent with our baseline views for this year that EUR/USD traces out a 1.10-1.15 range."

"The eurozone calendar is very light today, but we do have a new date for the diary: 25 June, when Germany could unveil a new economic package and add some weight to the fiscally expansive bullish euro story."

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FXStreet Insights Team

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