ING expects EUR/USD to dip below 1.14 this week but flags a potential ECB rate hike risk amid high energy prices.
EUR/USD remains above 1.14 despite Brent crude exceeding $90, defying typical bearish pressure. A tighter correlation between energy prices and short-dated euro swap rates is providing support, with two-year EUR swap rates hitting new yearly highs.
Last week’s US inflation data weakened short-dated US rates, narrowing EUR/USD two-year swap spreads. ING still forecasts a decline to 1.1380 this week but acknowledges a risk of a surprise European Central Bank rate hike on Thursday.
The bank’s macro team suggests the ECB may use rising energy prices as justification for an earlier-than-expected second hike, though this remains a risk scenario rather than the baseline. Meanwhile, EUR/NOK is projected to fall toward 10.95.