Euro: Rotation into Dollar cash caps gains against US Dollar – ING

Chris Turner at ING describes the Euro’s recent performance as unimpressive, with EUR/USD failing to benefit from the US tech sell-off. He argues that European investors are keeping cash in Dollars and that familiar safe-haven correlations with US Treasuries have returned. Barring a soft US jobs report, Turner expects EUR/USD to consolidate near 1.12, while ECB pricing for December hikes remains sticky.

Euro struggles despite US tech rout

"It has been a rather unimpressive performance from the euro. We know that the European buy-side is running low hedge ratios on its US investments. Yet a large US tech sell-off is still not enough to prompt much EUR/USD buying at all."

"It seems that global investors are more than happy to leave their cash in dollars for the time being. In other words, we are seeing a rotation into cash and not out of the dollar. Helping that story is the return to more familiar correlations, where US Treasuries are now performing their safe haven role."

"Barring a soft US jobs report today, expect EUR/USD to consolidate not far from 1.12."

"The market still prices 18bp of ECB hikes in December and that should remain sticky unless we see a much deeper equity correction."

"EUR/GBP has overshot rate differentials down at these low 0.83 levels, but there seems to be no reason to expect an upside correction just yet."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)