Euro: Fair value drop points to downside against US Dollar – ING

Francesco Pesole at ING highlights that EUR/USD short-term fair value from the bank’s 60‑day model has fallen below 1.150, with equities and rate differentials driving moves more than Oil. He expects only one more hike from both the ECB and Fed this year, supporting a 1.160 year-end EUR/USD forecast, but sees near-term risks skewed toward a retest of June’s 1.1320–1.1330 lows.

Model signals weaker Euro against Dollar

"EUR/USD short-term fair value based on our 60-day model has dropped below 1.150 for the first time since late July. Interestingly, oil prices are showing a small beta, with equities and rate differentials the dominant drivers. The spread between the two-year SOFR and ESTR has rewidened to 150bp, also to levels last seen in July."

"European Central Bank officials have so far maintained a notably hawkish tone, keeping an October hike firmly on the table. Even so, investors appear increasingly willing to embrace the opposite narrative, pointing to further near-term downside pressure on EUR/USD."

"Our baseline, still, is that hawkish expectations are too aggressive on both sides of the Atlantic. We expect just one additional hike from both the ECB and the Fed this year, followed by no further tightening in 2027. That view supports our 1.160 year-end EUR/USD forecast. In the near term, however, the risks favour a retest of the 1.1320-1.1330 lows reached in June."

"Today’s focus is on a busy slate of ECB speakers, including ECB President Christine Lagarde. On the data side, the only notable release is the eurozone consumer confidence indicator for September."

"Meanwhile, the French 10-year spread over German bunds has hit the 100bp mark. The FX market is treating this with caution, but risks of further spread widening remain, and the EUR may start to pay greater attention soon."

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