Home›Forex›Major Pairs›EUR/USD faces downside risk from rising oil and gas pr…

EUR/USD faces downside risk from rising oil and gas prices

ING says the EUR’s near-term support from a tighter EUR/USD two-year swap gap may fade if energy costs worsen eurozone terms of trade.

Reported · Written up by our desk · Major Pairs

ING’s Francesco Pesole argues that the euro is being supported in the short run by the EUR/USD interest rate differential as Gulf tensions re-escalate. He points to a rebound in EUR front-end rates that helped the two-year swap rate gap re-tighten by about 15 basis points since the start of July.

Pesole also cautions that this rate-driven cushion may not hold if oil and gas prices keep climbing. He says there is limited scope for additional ECB hikes and that higher energy costs could worsen eurozone terms of trade, creating renewed pressure on the currency pair.

FXStreet notes that ING warns EUR/USD could move toward 1.10 if energy prices rise further. The analysis links the downside risk to diminishing expectations for further European rate hikes at the same time oil and gas prices increase.

The broader setup comes as ING frames oil price moves as arriving when ECB hike bets were already thinning, leaving more room for EUR front-end rates to recover in the near term, but not necessarily beyond that.

Latest closeEUR/USD 1.139 ▼0.4%

More like this

Sources