Euro: 1.150 target nears on Fed risk against US Dollar – ING

ING’s Francesco Pesole highlights that the Federal Reserve announcement could push EUR/USD towards the 1.150 target. He notes that below 1.150 risks become more balanced given technicals, short-term valuation and rate differentials, while both Fed and ECB are seen on hold, allowing dovish repricing in EUR and USD curves and potentially putting a floor under EUR/USD alongside lower energy prices.

Pair eyes 1.150 as risks rebalance

"Today’s Fed announcement can take EUR/USD closer, if not all the way, to our 1.150 target. We are not ready to call an imminent end to the decline given the energy price backdrop, but below 1.150 the risks should become more balanced from a technical/short-term valuation perspective. Short-term rate differentials wouldn’t accommodate big moves lower, and the risks of any political/domestic risk premium build-up appear more concentrated on the US ahead of the midterms than the eurozone (even though the French budget is a concern)."

"Looking a bit further ahead, our macroeconomists’ calls for no further hikes by both the Fed and ECB imply room for sharp dovish repricing in both the EUR and USD curves. A coordinated move lower in front-end rates can put a floor under EUR/USD, as would likely happen alongside a decline in energy prices. Lower USD funding costs usually have a positive knock-on effect on global sentiment."

"Elsewhere, EUR/GBP is trading a tad higher this morning after UK inflation figures printed in line with consensus. Headline CPI accelerated from 2.9% to 3.1% in August, but there is still no evidence of accelerating inflation in core and services. That’s something Bank of England doves can cling to tomorrow, tilting the balance to a more dovish message relative to very hawkish market expectations."

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