EUR/USD below 1.10 seemed to be a matter of when rather than if following the rewidening of the USD:EUR short-term rate gap, ING’s FX analyst Francesco Pesole notes.

EUR/USD to explore levels below 1.09

“We think 1.100 would have worked as a sturdier support had we not seen such strong US jobs numbers. Now, we could see some mild support coming the pair’s way in the coming days as the Fed and ECB repricing have both run their course, but we think the risks are still skewed to the downside by the end of October as the ECB should cut, the EUR curve should favour dovish bets, and other factors can support the dollar.”

“The eurozone data calendar is quite quiet this week, so a greater focus will be on ECB speakers. Last week’s comments by prominent hawkish member Isabel Schnabel seemed to suggest that the hawks are also concerned about growth and might ultimately give their go-ahead for an October cut. Over the weekend, dovish member Francois Villeroy said an October cut is likely.”

“Anyway, consensus has already mapped out the easing path ahead for the ECB and markets are now fully aligned with it, pricing in 23bp of easing for next week and another full 25bp cut in December. We struggle to see rate expectations move much before the 17 October meeting – and barring a US data tumble, the USD:EUR 2-year swap rate gap will not retighten materially from the current 125bp. That rate differential is consistent with explorations below 1.09 in EUR/USD.”