Thursday's ECB meeting proved more eventful than we had anticipated, ING's FX analyst Francesco Pesole notes.

Break above 1.180 in the near term seems rather likely

"After an initial dovish reaction to the statement – likely due to a slight downward revision in 2027 inflation forecasts – the euro spiked on the back of President Lagarde’s hawkish remarks. The balance of risks for growth is now seen as 'more balanced', and there was strong wording on the fact that the disinflationary process in the euro area is now over. At the same time, Lagarde steered clear of any headline-catching comments on French bonds, which we thought was a major dovish risk."

"All in all, the implicit message to markets was that there are no reasons to keep pricing in additional rate cuts as things stand. Indeed, the implied probability of further easing dropped below 50% after Lagarde’s presser, offering strong rate-driven backing to the euro rally. While we wouldn’t fully rule out a resurgence of dovish sentiment – especially as tariffs, a strong euro, and geopolitical or sovereign debt risks may prompt future action – our baseline view remains aligned with market expectations: the ECB is done cutting rates."

"The combined effect of hawkish ECB and US jobless claims spike sent the EUR:USD 2-year swap spread to -110bp, very close to the late September 2024 levels, when the Fed had just cut 50bp. While the spread is still some 35bp wider compared to the last time EUR/USD was trading at these levels four years ago, the medium-term rate-implied risk premium on the dollar has shrunk substantially, making further EUR/USD gains more feasible. A break above 1.180 in the near term now seems rather likely."