The EUR/USD currency pair has rebounded above 1.140, driven by a sharp drop in oil prices, according to ING’s Francesco Pesole. However, Pesole cautions that this recovery appears optimistic in the absence of a clear de-escalation in geopolitical tensions, noting that any renewed military strikes could quickly push Brent crude back to $100 per barrel and EUR/USD below 1.1380 [1].
European gas prices remain elevated, with TTF trading at €58/MWh, which is more than 30% higher than levels at the start of July and close to the highs seen in March. This sustained increase in gas prices is negatively impacting the euro's terms of trade, a key medium-term driver of EUR valuation, which are currently hovering near March lows and at levels comparable to 2023 [1].
Pesole also highlights that precautionary USD buying ahead of the upcoming FOMC meeting may weigh on EUR/USD into Wednesday. On the data front, Eurozone CPI is expected to rise above 3.0% on Friday, but with core inflation still near 2.5%, ING does not anticipate this will trigger aggressive hawkish repricing. Markets are currently pricing in 42 basis points from the European Central Bank by year-end, but this outlook remains highly sensitive to ongoing oil volatility [1].
CONCLUSION
Despite a temporary rebound in EUR/USD, persistent energy risks and geopolitical uncertainties continue to cap the euro's recovery. Market sentiment remains cautious, with traders closely watching upcoming Eurozone inflation data and the FOMC meeting for further direction. The euro's outlook is expected to remain highly sensitive to energy price fluctuations and geopolitical developments.