In the view of economists at ING, EUR/USD sensitivity to the Dollar leg and – by extension – US activity data should be even higher at this point.
Driven even more by the Dollar after dovish ECB hike
We think that at this stage EUR/USD will revert to being even more driven by the Dollar leg. Markets have taken on board the notion that the ECB has likely peaked, meaning that data releases in the Eurozone should lose some degree of market relevance.
Lagarde has probably switched from a near-term hawkish narrative to defending a higher-for-longer approach to combat inflation: expect some pushback against rate cut speculation if Eurozone data deteriorate further.
We could see EUR/USD inch back higher today, but a return to the 1.0600/1.0650 area around the Fed meeting seems appropriate.
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