EUR: ECB hawks fly low – ING
23.10.2024, 08:52

EUR: ECB hawks fly low – ING

EUR/USD briefly printed below 1.0800 overnight. Markets could see the pair stabilise around current levels for a bit longer, but the chances of a sustainable rebound remain slim as the USD:EUR two-year swap rate gap is now at its widest since May (145bp) and it’s hard to pinpoint any clear driver for a retightening in the near term, ING’s FX Francesco Pesole notes.

Cable can still move to 1.28 by month-end

“One of the reasons that the gap will stay wide is that ECB speakers have followed a rather dovish script in post-meeting commentary. Even the most hawkish members like Austria’s Holzmann decided not to push back against market pricing for back-to-back ECB cuts into mid-2025, and President Christine Lagarde reiterated her generally dovish tone at a TV interview yesterday.”

“Today, the eurozone calendar includes consumer confidence figures for October, and a bunch of other ECB speakers – including Lagarde again and Chief Economist Lane. The policy communication however appears quite clear, and markets may start to overlook some of those comments. If PMI fails to surprisingly rebound, the ECB should keep cutting, and EUR short-term swap rates will still remain capped. Our call remains for EUR/USD at 1.07 before the US election.”

“Elsewhere in Europe, we continue to see downside risks for sterling ahead of speeches by Bank of England Governor Andrew Bailey today, tomorrow and Saturday, as well as some potential risk premium being built before the UK Budget announcement next week. Cable can still move to 1.28 by month-end.”

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