ING Sees EUR/USD Fair Value Slipping Below 1.150
ING forecasts EUR/USD at 1.160 by year-end but warns of near-term downside risks towards 1.1320.
Key points
- ING's 60-day model shows EUR/USD fair value dropping below 1.150 for the first time since July.
- The bank forecasts a year-end EUR/USD rate of 1.160 assuming one final hike from both central banks.
- Near-term risks favor a retest of the 1.1320 to 1.1330 lows established in June.
ING reports the euro’s short-term fair value against the dollar has fallen below 1.150. This marks the first time the level has dropped since late July. The bank attributes this shift primarily to equity markets and interest rate differentials rather than oil prices.
FXStreet notes that ING expects only one additional rate hike from both the ECB and the Fed this year. This baseline supports a year-end EUR/USD forecast of 1.160. However, analysts see near-term risks skewed toward a retest of June lows.
Rate Differentials Drive Currency Moves
The spread between two-year SOFR and ESTR has rewidened to 150 basis points. This level matches readings last seen in July. ING states these factors dominate the model’s fair value calculation more than commodity prices.
European Central Bank officials have maintained a hawkish tone regarding an October hike. Investors, however, increasingly favor a narrative of less aggressive tightening. This divergence creates pressure for further near-term downside in the euro.
French Bond Spreads Test Euro Stability
The French ten-year bond spread over German bunds has reached 100 basis points. The foreign exchange market is currently treating this development with caution. Risks of further spread widening remain a key variable for currency performance.
The euro may need to pay greater attention to this fiscal risk soon. ING emphasizes that while the year-end target remains 1.160, short-term volatility is elevated. Market participants watch these bond spreads closely as a leading indicator.
ECB Speakers Face Market Scrutiny
A busy slate of ECB speakers is scheduled for today. This includes ECB President Christine Lagarde. Their comments will provide crucial context for the bank’s monetary policy stance.
The eurozone consumer confidence indicator for September is the only other notable data release. Traders will assess these inputs against ING’s model outputs. The combination of policy signals and economic data will dictate near-term price action.
