The euro's recent rally against the US dollar stalled just above 1.16, with the EUR/USD pair remaining range-bound as investors exercise caution ahead of the upcoming FOMC minutes and amid persistently high natural gas prices [1]. Chris Turner at ING notes that the EUR/USD is expected to trade within a 1.1520–1.1580 range in the near term, reflecting market hesitancy to push the currency pair higher under current conditions [1].
Despite positive economic surprises in the eurozone, the elevated natural gas prices are contributing to a cautious market tone and are reinforcing expectations for a 25 basis point rate hike from the European Central Bank in September [1]. There is also ongoing speculation about the possibility of another 25 basis point hike by early next year, as higher energy costs continue to influence monetary policy outlooks [1].
ING maintains its forecasts for the EUR/USD at 1.17 by the end of September and 1.18 by year-end, based on the assumption that the Federal Reserve will not implement further rate hikes [1]. The market is closely watching both energy price developments and the outcome of the FOMC minutes for further direction [1].
CONCLUSION
The euro remains in a tight range against the US dollar as investors await the FOMC minutes and monitor high energy prices. Market expectations for ECB rate hikes are firming, but ING anticipates only modest gains for the EUR/USD by year-end if the Fed holds rates steady.