Euro Gains Support as U.S.-Eurozone Short-Term Rate Gap Narrows, ING Says

The euro has remained supported against the U.S. dollar as the short-term interest-rate differential between the United States and the eurozone has narrowed again, ING analyst Francesco Pesole wrote in a report. According to Jin10, Pesole said the EUR/USD pair was getting some support as the U.S.-Iran conflict escalated again. He added that market expectations for European Central Bank rate hikes have cooled, leaving room for eurozone short-end rates to rebound and support the euro. However, Pesole said this support may be difficult to sustain if energy prices keep rising. He noted that the ECB’s decision-making leadership has recently maintained a cautious stance, and higher energy prices would negatively affect trade conditions. As a result, he said markets may struggle to price in expectations for more than two ECB rate hikes before the end of this year.