Euro: Hawkish ECB offers limited support against US Dollar - ING

ING’s Francesco Pesole highlights that recent European Central Bank commentary remains broadly hawkish, with limited pushback from the dovish camp. While this argues against aggressively selling EUR/USD at current levels, ING still sees downside risks as front-end US rates may rise further and the broader commodity and risk backdrop weighs on the Euro, with a test of 1.140 seen as a near-term risk.

ECB rhetoric versus Dollar strength

"European Central Bank members have resumed public appearances, with three policymakers delivering policy-related remarks yesterday. The tone remained broadly hawkish. Neutral-to-hawkish Gabriel Makhlouf said every meeting is a "live" one, leaving the door open to an October hike; Ante Zigman, who is considered somewhat more hawkish, stressed the resilience of growth and the need to bring inflation lower."

"Olli Rehn, one of the Governing Council's most dovish voices, was unsurprisingly more neutral but did not push back against market expectations. It confirms the dovish camp is weak at the moment."

"One notable point was that all three policymakers said there is no evidence of second-round effects. That remains somewhat inconsistent with the prevailing hawkish narrative and guidance. Even so, we do not expect any shift in tone in the near term."

"This is one reason not to chase EUR/USD lower too aggressively from current levels. At the same time, front-end USD rates could still move higher in the coming weeks, particularly around key data releases, while the broader commodity and risk backdrop continues to point to downside risks for EUR/USD."

"President Christine Lagarde speaks later today, but it is difficult to see her adding much to the message so soon after the meeting. A test of 1.140 remains the near-term risk, although our base case is for some stabilisation today."

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