EUR/USD: ECB hawks lag Fed – ING

Chris Turner at ING argues that while European Central Bank (ECB) rhetoric points to a December rate hike, markets see US tightening as more credible than in the Eurozone. Wider short-dated EUR/USD swap differentials are weighing on the pair.

Euro pressured by rate differentials

"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."