Euro: Gradual recovery from Warsh sell-off against US Dollar – ING

ING’s Chris Turner writes that EUR/USD is grinding higher as markets reverse the earlier sell-off triggered by Kevin Warsh’s speech, with the pair moving back toward 1.1650. A softer Dollar backdrop versus EMFX and pro-growth G10 currencies supports the Euro. Turner also flags German local election risks and sees EUR/GBP holding a range before a potential move to 0.87 in the fourth quarter.

Euro benefits from softer Dollar tone

"EUR/USD is drifting higher as markets unwind the moves made on the back of Warsh's speech a week ago. EUR/USD had been trading around 1.1650 before that speech and looks to be grinding back in that direction now."

"The generally offered dollar environment against EMFX and pro-growth currencies in the G10 space is creating a supportive environment for EUR/USD – even if the Fed story is uncertain."

"One left-field risk for the euro is the upcoming local elections in Germany. Major success for the AfD in Sunday's Saxony-Anhalt elections may raise more questions over the stability of Friedrich Merz's government."

"Elsewhere, EUR/GBP is consolidating after breaking above 0.86 yesterday. No doubt the gilt sell-off, and what it means for strained UK public finances, played a role there."

"It seems too early to get the all-clear on inflation, meaning that up to 60bp of BoE tightening can sit in UK money markets for a while longer. That probably means EUR/GBP can trade 0.8550-0.8600 before breaking higher to 0.87 in the fourth quarter."

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