ING's Francesco Pesole has updated the firm's forecast to expect an additional European Central Bank (ECB) rate hike in December, citing political developments in Germany and broader market dynamics. Despite this shift, ING has kept its EUR/USD profile unchanged, maintaining a year-end target of 1.160, due to similar front-end swap pricing for both EUR and USD, with 33-37 basis points priced in by year-end and 80-90 basis points by July [1]. Pesole notes that both central banks are expected to deliver one more hike this year, followed by a prolonged pause, which should result in dovish repricing of rates. This repricing, often associated with lower energy prices, is seen as a positive for EUR/USD, as lower USD rates tend to boost global risk sentiment [1].
However, ING highlights that downside risks persist for EUR/USD in the near term. Pesole points out that a retest of the 1.1320-1.1330 lows from June is considered premature and not supported by ING's short-term fair value model. Nevertheless, this scenario could become realistic if Brent crude oil prices rise towards $110 per barrel and markets increase the probability of a Federal Reserve rate hike in October [1].
Overall, ING's outlook remains cautious, balancing the potential for dovish repricing on lower energy prices against the risk of renewed downside pressure if energy prices surge and Fed hike odds increase. The unchanged EUR/USD target reflects confidence in the current swap pricing and expectations for central bank actions, but short-term risks remain skewed to the downside [1].
CONCLUSION
ING expects an additional ECB rate hike in December but maintains its EUR/USD year-end target at 1.160, citing similar swap pricing and dovish repricing prospects. Near-term downside risks for EUR/USD persist, especially if energy prices rise and Fed hike odds increase. The market takeaway is cautious optimism for EUR/USD, tempered by short-term risk factors.