EUR/USD: Will the ECB be worried by a move above 1.20? - ING

Sandeep Kanihama FXStreet Contributor

When the ECB last met to discuss monetary policy on July 20th, concerns were expressed about the risks of the EUR ‘overshooting’, notes the analysis team at ING.

Key Quotes

“Since then EUR/USD has rallied a further 5% and the ECB’s trade-weighted EUR is up close to 3%. The ECB was right to worry. Certainly, the speed of the move has surprised the market as well. The EUR/USD consensus, as published on August 7th by Consensus Economics, was rooted at 1.15 until end 2018. Rising traded volatility in the FX option markets also suggests the scale of the move was unexpected.”

“The ECB will worry this euro strength is coming too early for the Eurozone recovery and in particular too early in the ECB’s battle to return inflation back to target of close to, but just below 2%. The stronger euro should leave its marks on the next round of ECB staff projections, which are also due at next week’s meeting. The appreciation of the euro since the June forecasts could easily shave off 0.4 percentage points from the ECB’s growth forecasts and around 0.2 pps off the inflation forecast. However, the ECB will take some solace from lower bond yields, which should partly offset the impact from the stronger currency on growth and inflation.”

“More generally, the strong domestic economy should shield the Eurozone against too negative an impact from a stronger euro. Still, even if there is no reason for the ECB to panic, worries will grow.”

“Even if the absolute level of the euro is still around its historical average, the change over the last few months would clearly qualify what the ECB in the past referred to as “brutal movements’. Anecdotal reports suggest eurozone central bankers have seen 8-10% appreciations in EUR/USD, over short periods (two to three months), as far too abrupt for European corporates.”

“The problem with a stronger euro is also that it will hurt the Eurozone economies asymmetrically. Normally, a stronger euro would first hurt countries which could potentially also suffer from tapering. Italy, for example, is one of the countries which has benefitted significantly from the weak euro in recent years.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

GBP/USD flirts with two-day lows near 1.3180

GBP/USD remains on the back foot in the latter part of Tuesday’s session, sliding to the sub-1.3200 area and challenging weekly lows. Cable’s decline comes as investors assess the political uncertainty in the UK, coupled with softer-than-expected UK PMI data and the better tone in the Greenback.

EUR/USD weakens below 1.1400 on stronger Dollar

EUR/USD adds to Monday’s losses and recedes below the 1.1400 support to clinch fresh 13-month lows in the latter part of Tuesday’s NA session. The pair’s marked sell-off comes on the back of the persistent move higher in th US Dollar, always propped up by rising bets of further tightening by the Fed.

Gold retains bearish bias near two-week low as Fed hike bets support USD

Gold recovers slightly from a fresh two-week low, near $4,080 touched during the Asian session on Wednesday, though it lacks follow-through. The US Dollar stands firm near its highest level since May 2025 amid firming expectations of a Fed rate hike, which, in turn, is seen undermining the non-yielding bullion. Furthermore, mixed US-Iran signals over Tehran's nuclear issues favor the USD bulls, suggesting that the path of least resistance for the commodity remains to the downside.

Australia CPI set to show inflation accelerated again in May

The Australian Bureau of Statistics will publish the high-impact Consumer Price Index for May on Wednesday at 01:30 GMT. Heading into the inflation test, the Australian Dollar is at its lowest level in two months against the US Dollar, having surrendered the 0.7000 psychological mark.

"Rearranging the deckchairs on the Titanic": UK's fiscal crisis outlasts another Prime Minister

Keir Starmer's resignation as the UK Prime Minister comes ten years after the Brexit referendum vote, a coincidence that financial markets have been quick to note. The British Pound trades around 1.3220 against the US Dollar on Thursday.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.