ING’s Francesco Pesole argues that while the European Central Bank (ECB) must stay hawkish to contain long‑end yields, EUR/USD remains vulnerable. Pesole sees G7 developments as unlikely to shift markets and judges current ECB tightening pricing as excessive, expecting greater risk of a move back to 1.1600 than a recovery to 1.1700 in the near term.

ECB stance limits but does not erase downside

"The ongoing G7 summit in Paris is unlikely to deliver meaningful outcomes from a market perspective. While the current crisis may accelerate efforts to extend Europe’s independence from the military sphere, as seen last year, to resources and supply chains, it remains difficult for markets to play the long game at this stage."

"What should still limit excessive downside pressure on EUR/USD is the ECB having little choice but to stay hawkish to avoid losing control of the long end of the curve."

"While the 73bp of tightening priced into the 2026 OIS curve looks excessive, we would not expect the ECB to push back against hawkish expectations until a clear path towards a reopening of Hormuz emerges."

"Based on our USD view, we see greater risks of EUR/USD retesting 1.1600 than returning to 1.1700 this week."

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