ING’s Francesco Pesole highlights that EUR/USD is driven by war developments and Federal Reserve communication, with a hawkish Dot Plot revision posing downside risks for the pair. He notes the European Central Bank meeting follows weak ZEW expectations data and sees some dovish risks, though recent Euro sensitivity to short-term rate differentials appears reduced.

Hawkish Fed seen weighing on Euro

"Today will be about war developments and the Fed for EUR/USD. As discussed above, we see upside risks for the dollar from a hawkish Dot Plot revision, and EUR/USD may pull back to the 1.150 handle."

"The ECB meets tomorrow and might need to take into account yesterday’s very weak ZEW ‘expectations’ survey, which fell to an 11-month low on war-related fears. Unlike the Fed, the ECB only has an inflation mandate, but history tells us the economic outlook plays a major role too."

"Perhaps concerns about the growth hit and the temporary nature of some energy shocks could prompt some pushback against markets’ ultra-hawkish bets. We do see some dovish risks tomorrow, although the implications for the euro may not be huge given reduced sensitivity to short-term rate differentials of late."

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