EUR: June ECB rate cut looks on the cards – ING

The release yesterday of ECB minutes and ECB commentary seems to squarely point to a 25bp ECB rate cut in June, ING's FX analyst Chris Turner notes.

Euro benefits from being the most liquid alternative to the USD

"That would take the deposit rate to 2.00%. That's fully priced by the markets, as is a further 25bp rate cut in December. Yesterday's flash PMI data for May appears to support that pricing, with some worrying declines in the services component. Here, it clearly looks as though uncertainty is weighing on activity, and there will be much focus on EU-US trade negotiations, which should pick up steam next month."

"We think the euro is continuing to benefit from being the most liquid alternative to the dollar. There is also evidence that portfolio re-allocation is helping the euro. Earlier this week, March eurozone Balance of Payments data showed that eurozone residents repatriated EUR40bn of foreign equity positions in March—the largest inflow since September 2022. And the equity portfolio flow account looks pretty healthy for the euro right now."

"Expect EUR/USD to trade well within a 1.1280-1.1380 range today."