Euro: Hawkish ECB cushions losses against US Dollar - ING

Francesco Pesole at ING notes EUR/USD is trying to establish support around 1.1200 after a strong start to the week. A Democratic sweep could offer some help, but he does not foresee major sentiment changes. Persistent French spread premia and elevated energy prices keep a risk premium embedded in the Euro, while recent European Central Bank (ECB) commentary remains hawkish and points to at least one more rate hike.

Hawkish ECB and lingering risk premium

"EUR/USD is looking to establish support at 1.1200 after a good start to the week. A Democratic sweep at the midterms today could help, but we don’t expect radical mood changes in the pair."

"French spreads didn’t benefit from lower oil prices yesterday, signalling levels above 150bp are the new normal now. It therefore remains hard for the euro to shake out the lingering risk premium, and much more tangible progress is needed for oil to trade sustainably lower from here."

"In the eurozone, focus will be on a number of ECB speakers today. Since last week’s meeting, we’ve heard some hawkish comments, endorsing market expectations that at least another hike is needed."

"Elevated energy prices suggest there is little room for a clear dovish current to emerge yet."

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