Euro: Gains against US Dollar capped by rotation into Dollar cash – ING

Unless the US jobs report is soft, ING’s Chris Turner expects EUR/USD to consolidate around 1.12, while market pricing for December ECB rate rises remains sticky. Turner regards the euro’s recent showing as lacklustre, noting that the sell-off in US technology shares has failed to lift EUR/USD. In his view, European investors are retaining cash in dollars, while the usual safe-haven correlations involving US Treasuries have re-emerged.

Euro fails to gain from US technology sell-off

"It has been a rather unimpressive performance from the euro. We know that the European buy-side is running low hedge ratios on its US investments. Yet a large US tech sell-off is still not enough to prompt much EUR/USD buying at all."

"It seems that global investors are more than happy to leave their cash in dollars for the time being. In other words, we are seeing a rotation into cash and not out of the dollar. Helping that story is the return to more familiar correlations, where US Treasuries are now performing their safe haven role."

"Barring a soft US jobs report today, expect EUR/USD to consolidate not far from 1.12."

"The market still prices 18bp of ECB hikes in December and that should remain sticky unless we see a much deeper equity correction."

"EUR/GBP has overshot rate differentials down at these low 0.83 levels, but there seems to be no reason to expect an upside correction just yet."

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