EUR/USD Analysis: Short-term Rates Point to Consolidation Above 1.11
As the EUR/USD pair hovers above 1.11, the short-term rates suggest a potential consolidation with some upside. Despite the eurozone’s sluggish growth, the current forecast leans towards a 1.12 mark for EUR/USD, according to ING’s FX strategist Francesco Pesole.
ECB Speakers Set the Tone for Thursday
Following the post-FOMC volatility, the short-term rates scenario supports a consolidation above 1.11 in the EUR/USD pair. The Fed’s recent larger-than-expected cut, coupled with a more hawkish stance from the ECB, has deterred markets from pricing in another cut in the eurozone in October.
Key points to consider:
- The EUR:USD 2-year swap spread has decreased to -0.85bp, down from -160bp in April and -100bp just a month ago.
- The current rate differentials suggest a potential trading level closer to 1.13 if not for the eurozone’s economic challenges.
- Today’s eurozone calendar lacks significant data releases but features several ECB speakers, including doves like Panetta and hawks like Knot and Schnabel.
- The hawkish sentiment from ECB members may deter markets from expecting further easing measures, despite the dovish influence from the Fed.
Analyzing the Impact on EUR/USD
Overall, the short-term rates outlook supports a consolidation above 1.11 in the EUR/USD pair, with the potential for some upside movement. The contrasting monetary policies between the Fed and the ECB, along with the eurozone’s economic challenges, play a crucial role in shaping the currency pair’s trajectory.