ING’s Chris Turner argues that with a 25bp ECB hike and further tightening already priced, the Euro faces a high bar for gains. Markets discount about 75bp of tightening through early next year. Without a clear hint of another hike in July, he sees limited scope for higher EUR swap rates, with EUR/USD capped near 1.1565/75 and vulnerable towards 1.1500 on strong US PPI.

Euro struggles with aggressive pricing

"The market expects a hawkish ECB meeting today, including a 25bp hike in the deposit rate to 2.25% and plenty of hawkish rhetoric."

"This means that today's hike is fully priced into money markets, with another 25bp hike priced by September."

"Pricing a 75bp tightening cycle in response to a stagflationary shock may be as far as pricing can go at the moment."

"Unless the ECB hints that it might need to hike again in July (8bp is priced so far), the prospects for higher short-term EUR swap rates to lift the euro today look limited."

"Short-term resistance at 1.1565/75 may be enough to contain the EUR/USD upside today."

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