EUR/USD: Fed hawks outpace their ECB counterparts – ING

A December rate hike is signalled by European Central Bank (ECB) rhetoric. Yet ING’s Chris Turner argues that markets view US tightening as more credible than tightening in the Eurozone. EUR/USD is under pressure as short-dated swap differentials widen.

Wider rate differentials weigh on EUR/USD

"European Central Bank rhetoric firmly points to the need for a rate hike in December. The problem for EUR/USD is that the market sees the potential for a prolonged tightening cycle as more credible in the US than in the eurozone. You don't hear many ECB speakers talking of a demand shock in Europe."

"Short-dated EUR/USD swap differentials have moved out to the widest levels of the year and are clearly weighing on the pair."

"Given the run of expected US inflation data over the coming weeks, we struggle to see what can take the pressure off EUR/USD. A break below 1.10 is not a given, but that level is certainly at risk into year-end."

"EUR/USD bulls will have to be hoping for either an AI crash, the ECB sounding far more hawkish or perhaps some major geopolitical breakthrough in Iran or Ukraine."

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