Euro: Fair value falls on oil and Fed pressure against US Dollar - ING
Francesco Pesole at ING highlights that EUR/USD has broken lower after a more hawkish‑than‑expected Federal Reserve meeting, with the two‑year swap differential at its widest since July.
The Euro strengthened against the US Dollar on Thursday as falling oil prices reduced US Treasury yields, tempering post-Federal Reserve gains. At press time, the EUR/USD pair was trading around 1.1492, a 0.24% increase for the day, near the July 31 level. WTI Oil slipped 2% to $95.50, alleviating supply concerns after Saudi Arabia rerouted its key pipeline following drone attacks.
Meanwhile, Iran reportedly asked China to help halt Houthi attacks, according to three Iranian sources cited by Reuters. The 10-year US Treasury yield slipped to 4.94%, below the 5.04% peak earlier in the week, its highest since 2007. The US Dollar surged on Wednesday, reaching a seven-week high after the Fed unanimously raised rates by 25 basis points to 3.75%-4.00%, the first increase since 2023.
With a 50% chance of another rate hike in October, a hawkish Fed outlook capped the EUR/USD recovery, despite expectations of further tightening from the European Central Bank. Strong US labor market data, including falling initial jobless claims, provided support for the Greenback. The Euro hovered at 1.1492, up 0.24% on the day, while the US Dollar Index reached 100.08, its strongest level since July 31.
On the Euro side, August inflation data showed slightly lower headline HICP at 3.2% and stable core inflation at 2.4%, with the ECB cautious about inflation risks.
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