ING: The EUR - FJElite

EUR/USD resurfaced above 1.160 yesterday but is clearly awaiting cues from the Fed to leap in either direction. As discussed above, our call is neutral on the dollar today and, by extension, on EUR/USD.

However, the inclusion of financial incentives for Iran in the peace deal (oil export resumption, economic development funds and asset unfreezing) does make the drop in oil prices look more sustainable, and therefore reduces downside risks for EUR/USD from here. We expect consolidation in the 1.160-1.1650 area for now.

One EUR-cross we are monitoring closely this week is EUR/GBP. That is trading slightly firmer this morning after May's UK inflation surprised slightly on the downside. Headline CPI was unchanged at 2.8% (consensus 3.0%) mainly due to muted food inflation and the core reading inched slightly higher to 2.6% (consensus 2.7%). Services CPI was, however, slightly hotter than expected at 3.7%. These figures don’t change our call for a 7-2 hold vote by the Bank of England tomorrow.

Risks however remain on the upside for EUR/GBP as 30bp of BoE tightening in the curve appears too hawkish, and some political risk premium may re-emerge after tomorrow’s by- election that is expected to pave the way for Andy Burnham to replace Keir Starmer as Prime Minister.