Weighted by tariffs and spreads – ING

The repricing of the Fed cycle after the strong US jobs data has seen EUR:USD two-year swap rate differentials widen back out beyond 190bp. We expect those differentials to stay near 200bp for most of the year and to keep EUR/USD under pressure. Equally, Friday’s release of the European Central Bank’s staff paper into the neutral interest rate had little impact on the pricing of the ECB cycle, ING’s FX analyst Chris Turner notes. 

A move back to 1.0225 is possible

“The threat of tariffs coming to Europe this week has seen EUR/USD drop close to 1.03 again. A move back to 1.0225 is possible if the ‘reciprocal’ tariffs claw in the EU or some of the major European countries. And Wednesday’s US CPI release is another negative event risk for EUR/USD.” 

“If it can survive the tariff risk and the CPI, the run-up into Friday could look a little better for EUR/USD as investors turn their attention to the Munich security conference. Here we are expecting to hear more about the US proposed ceasefire deal in the Russia-Ukraine conflict. A surprise deal would certainly be a positive for the European currency complex.”