ING sees limited upside for the euro despite short-term swap rate differentials tightening by 10bp amid geopolitical risks.
Middle East tensions have modestly tightened EUR/USD two-year swap rate differentials by around 10bp, though spreads remain 50bp wider than April peaks. The adjustment follows renewed market bets on a potential September European Central Bank rate hike.
Despite the shift, the spread is still 15bp wider than pre-war levels, reflecting lingering uncertainty. Markets may stabilize ahead of weekend developments, but risks favor a retest of 1.140, limiting sustained euro strength.
ING warns the path for EUR/USD gains is narrow, with downside risks persisting despite temporary rate support.