EUR/USD: Cyclical versus structural challenges – ING

The dollar is doing its best to unwind April's sharp losses, ING's FX analysts Francesco Pesole and Chris Turner note.

Support can be found at 1.09/1.10 now

"The temporary reductions in tariffs – pointing at room for negotiation – have helped a 5% risk premium come out of the dollar. But this year's rally in EUR/USD was not entirely driven by trade. EU fiscal stimulus drove a good part of the Feb/March rally and should be reason enough for support to be found at 1.09/1.10 now."

"The market's pricing of just 55bp of Fed rate cuts this year seems quite modest now. We think the Fed could start with a 25bp rate cut in September and bring the policy rate down towards the 3.50% area next year. The European Central Bank will likely cut by 25bp on two occasions – probably in June and September."

"Evidence on the structural de-dollarisation theme will be hard to come by, but the theme will undoubtedly weigh on the dollar."