ING’s Francesco Pesole highlights that hawkish European Central Bank rhetoric is making Euro front-end rates stickier on the downside versus the US, where Fed easing is more easily priced. ING sees this asymmetry boosting upside potential for EUR/USD and other Euro crosses, though it keeps a cautious EUR/USD end‑Q2 forecast at 1.160 with no ECB hikes and two Fed cuts.

Sticky ECB expectations back Euro resilience

"The ECB has only an inflation mandate and its officials have sounded more convincingly hawkish so far. Yesterday, the most dovish Governing Council member, Fabio Panetta, openly discussed preventing a wage-price spiral, and while warning policy action should remain proportionate, the fact that he discusses ‘action’ as a base case sounds like a nod to hike expectations."

"These comments raise the chances that EUR front-end rates will prove sticky on the way down, as markets may require some dovish comments from the ECB to price out hikes even if oil prices keep declining. This morning, markets have abruptly trimmed bets on ECB tightening to 63bp, but there was much more resilience in those hawkish bets yesterday."

"A scenario where markets find it much easier to reprice the USD swap curve lower relative to the EUR one in an oil selloff significantly raises the upside potential for EUR/USD."

"That also increases the euro's potential against other currencies where the rate expectations are more vulnerable to a dovish repricing (like SEK, GBP) or more strictly exposed to oil prices (CAD, NOK)"

"Since our base case remains no ECB action and two Fed cuts, we remain cautious with our EUR/USD call at 1.160 for the end of 2Q."

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