Euro: Downside risks against US Dollar into ECB and Fed – ING

ING analyst Francesco Pesole observes that Eurozone growth in the second quarter has been stronger, maintaining a relatively strong Euro against the US Dollar. However, he maintains a short-term bearish outlook on EUR/USD due to anticipated September Fed rate hike and deteriorating Eurozone terms of trade. A move to 1.150 over the next few weeks is seen as realistic ahead of a possible dovish European Central Bank meeting.

Second-quarter Eurozone growth was revised upward to 0.6% quarter-over-quarter, fueled by improved Irish performance. The Eurozone's resilience despite geopolitical factors and higher commodity prices has also contributed to the Euro's strength. The downside preference for EUR/USD remains primarily due to USD expectations and the expectation of a September Fed hike, but recent energy price increases add further support.

Eurozone commodity terms of trade are now worse than at the previous low in March. Ahead of the ECB meeting on Thursday, the market's strong expectations of tightening hint at some dovish risks. Consequently, a potential move towards 1.150 in the weeks to come is deemed realistic. (This article was generated with the assistance of an AI tool and reviewed by a human editor.)

The FXStreet Insights Team is a team of journalists who carefully select market observations from respected experts. The content includes commercial insights along with additional perspectives from both internal and external analysts. AUD/USD steadies near the mid-0.7100s in the Asian session on Friday, temporarily halting the sharp decline it experienced the previous day.

The August PPI report reinforced expectations of a Fed rate hike and strengthened the US Dollar, negatively impacting the pair. However, hawkish expectations from the Reserve Bank of Australia (RBA) limited the Aussie's losses as USD bulls await the release of US consumer inflation data before making new bets. USD/JPY remains under pressure near 154.00 in the Asian session on Friday following strong Japanese PPI data, which has fueled a more hawkish stance from the Bank of Japan (BoJ) and provided additional support to the Japanese Yen.

Nonetheless, the downside is likely to be limited as the US Dollar maintains its recent gains ahead of the latest US consumer inflation data. Gold has regained some strength and is trading near $4,440 per ounce. This shift reverses Thursday's decline, as the US Dollar alternates between gains and losses at the end of the week.