EUR/USD: Backed by ECB rate expectations shift – ING

Euro Supported by Narrowing Rate Differentials Despite Energy Price Pressures

Chris Turner from ING points out that although rising energy costs typically weigh on EUR/USD, recent shifts in European Central Bank expectations have led to some of the smallest EUR/USD swap differentials seen in 2024. This development is helping to stabilize the Euro, with the 1.1500–1.1530 range acting as a short-term support zone as market participants monitor German economic indicators and energy market trends.

Rate Gap Narrows, Limiting Euro Weakness

Turner notes that the adjustment in the eurozone yield curve has outpaced that of the US, bringing the two-year EUR/USD swap spread down to 95 basis points—among the tightest margins since late 2024.

While elevated energy prices remain a clear headwind for EUR/USD, the narrowing rate differential is helping to cushion the downside for the currency pair.

This dynamic could reinforce the 1.1500–1.1530 area as a key support level in the near term.

Market watchers are looking to see if EUR/USD remains within the previous day's 1.1550–1.1650 band and potentially establishes a new base.

However, a further surge in energy prices could push EUR/USD to fresh lows, and investors may be reluctant to pursue gains on soft US data due to potential risks over the weekend.

(This report was produced with AI assistance and subsequently reviewed by an editor.)