Euro: Fed story caps upside against US Dollar – ING

Chris Turner at ING highlights softer Eurozone inflation and questions over a September ECB hike, with 15bp still priced but subsidies expiry possibly lifting prices later. He sees the Fed-Dollar narrative dominating summer, expecting EUR/USD to retest 1.1300 as markets price a 50bp Fed hike, before moving back into a 1.16–1.18 range into November–December if the Fed stays on hold.

ECB doubts and Fed expectations

"The euro was a little softer on the crosses yesterday. Softer eurozone inflation figures raise questions about whether the ECB needs to follow up with a hike in September after all. Here, a 15bp hike is currently priced for that meeting."

"However, our eurozone macro team warn that inflation could pick up over the coming months as many government energy subsidy measures expire at the end of June."

"While lower energy prices are a very welcome development for the euro, it looks like the Fed-dollar story will be the dominant theme this summer. Our baseline view is that EUR/USD probably retests the 1.1300 area over the coming weeks as the market shifts towards pricing a 50bp Fed rate hike this year."

"But based on a house view that the Fed does not hike, we are looking for EUR/USD to trade back into the 1.16/18 range into November/December."

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