ING: The EUR - FJElite

EUR/USD has held up remarkably well given the jump in oil prices yesterday. Yield spreads did narrow in favour of the euro, where euro swap rates rose around 7-8bp more than short-dated US rates on the view that the ECB is more likely to pull the trigger on another hike in September. However, we think the Fed story will be a more dominant theme and can easily see EUR/USD handing back early gains today and sending the euro back below the 1.14 level.

Could some of the EUR/USD resilience be down to President Trump mentioning Greenland again at the NATO conference? Remember that his threats back in January sparked a backlash against US asset markets from European investors. This link looks tenuous at best.

On the eurozone calendar today is the release of the ECB minutes for the 11 June meeting. We assume this will be pitched as hawkish and, combined with higher energy prices, keep expectations alive for a follow-up hike at the September meeting. That is currently priced at +22bp by money markets.

Elsewhere, sterling continues to do well. This repeats the performance at the start of the Gulf crisis in early March. Here, the front-end of the sterling money market curve adjusts more than in the eurozone and EUR/GBP goes offered. And the Swiss franc underperforms in a higher rate environment on the view that the Swiss National Bank will be the last of the G10 central banks to hike. This is helping to turn the GBP/CHF long-term bear trend and 1.10 could be the next stop here if energy prices stay high.