Chris Turner at ING notes that recent European Central Bank communication had limited impact on Euro rates and the Euro, with markets still pricing a June rate hike near 90%. He argues oil volatility drove most of the move in EUR swaps and expects EUR/USD to stay confined in a 1.1650–1.1750 range until Gulf tensions become clearer.

ECB stance and oil swings shape euro

"Given the volatility in oil markets yesterday, it has been hard to disentangle how much impact communication from the European Central Bank has had on short-dated euro interest rates and the euro. The conclusion is probably not too much, given that a June rate hike is still priced around 90%. The 10bp fall in short-dated EUR swap rates was probably more oil than ECB driven anyway."

"That said, at least the ECB was sounding tough enough to protect the euro, and its job is to keep tightening expectations and market-based interest rates high enough to avoid an unwelcome drop in real interest rates."

"We tend to favour EUR/USD continuing to trade in a 1.1650-1.1750 range in the near term and do not expect the dollar to return to its benign bear trend until there is a lot more clarity in the Gulf."

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