EUR: Benefitting from USD losses – ING

EUR/USD has rallied back above 1.10, banking on idiosyncratic USD weakness. The Atlantic spreads can have inverse correlations with FX if there are signs that markets are losing confidence in a broader spectrum of USD-denominated assets, ING's FX analyst Francesco Pesole notes.

USD stands to face asymmetrical downside impact from recession risk

"The euro remains in a good position to benefit from any USD confidence crisis, being the second most liquid currency in the world and a preferred alternative to the dollar for FX reserves. Incidentally, domestic soft growth is the normality for the euro but an abnormality for the dollar, and the greenback stands to face asymmetrical downside impact from recession risk."

"So far, the vicinity to an increasingly likely ECB cut is not harming the euro. If indeed the focus remains on the 'sell America' narrative into next week’s ECB meeting, a signal that the ECB is ready to ease policy while the Fed is stuck with inflationary fears might even have an abnormal positive effect on EUR/USD."

"Tariff headlines will dominate again today, and expect FX volatility to remain elevated across G10 and EM. EUR/USD may find some extra support for now should it clear the 1.100 level."