ING’s Francesco Pesole argues that while investors currently favour higher‑beta currencies, European Central Bank (ECB) pricing can still underpin the Euro (EUR). Markets continue to discount around 58bp of tightening despite lower energy prices, and ING doubts modest further declines in Oil alone will push expectations below 50bp, supporting EUR/USD back towards the 1.1700–1.1730 area rather than a rapid jump to 1.1800.
ECB rate expectations backstop EUR
“This is not an environment for outright EUR strength given investors’ preference for higher‑beta currencies. Still, European Central Bank pricing could give the euro more durable support than elsewhere. While falling energy prices have driven a dovish repricing in the EUR swap curve, markets continue to discount around 58bp of tightening by year‑end.”
“We doubt that a modest further decline in energy prices alone would be enough to push ECB pricing below 50bp. Rate cycles at the ECB are typically framed around two 25bp moves or nothing at all, meaning a material dovish shift would likely require explicit guidance rather than just lower oil prices.”
“With no permanent ceasefire in place and uncertainty around oil flows persisting, the ECB is unlikely to rush towards a decisively dovish narrative. That could prompt the euro to outperform other currencies (like USD) where pricing appears to be more flexible on the dovish side.”
“A jump to 1.1800 seems a bit premature given lingering volatility in the Gulf, but sticky ECB hawkish bets favour a return to the 1.1700-1.1730 area in EUR/USD.”
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