Euro: Are December ECB hike expectations supporting EUR? – ING

EUR/USD could revisit the 1.1200–1.1250 area as downside risks to the US Dollar grow, according to ING’s Francesco Pesole, although Christine Lagarde’s forthcoming departure and the selection of her successor could weigh on the Euro. Pesole notes that, despite leaving rates unchanged, the European Central Bank (ECB) sent hawkish signals: President Lagarde hinted at additional tightening, while officials were reportedly ready to raise rates in December.

Is the ECB Preparing for Further Tightening?

"The euro went on a small rollercoaster yesterday as the European Central Bank held rates. The statement initially came across as slightly dovish, with a reference to financial conditions weighing on inflation and growth. But President Christine Lagarde then delivered a few hawkish remarks in the press conference that propped up the euro."

"Lagarde said a hike was discussed at the meeting and hinted that the direction of travel remains towards further tightening. She also gave no indication that French bonds are prompting any dovish rethink at the ECB. Finally, the customary tip to the media a few hours later indicated that officials are “ready” to raise rates in December. That was another clear endorsement of rate expectations and has left the euro better supported."

"The side note was Lagarde’s resignation, effective 7 February, which brings forward the announcement of her successor by a few months. Pablo Hernández de Cos (dove) and Klaas Knot (hawk) are the frontrunners. Should the former be announced, it could bring some downside risks to the euro."

"We see a decent chance of EUR/USD re-exploring the 1.120-1.1250 area, as the dollar faces downside risks related to AI stocks and US midterms."

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