EUR: Lagarde puts a cap on the Euro - ING

ECB President Christine Lagarde sounded a bit more dovish than usual at yesterday's post-meeting press conference. She emphasised the ECB's greater confidence in the disinflation path, and while she said the activity picture only influences policy decisions insofar as it affects inflation, the general perception is that the focus has started to shift from inflation to growth, ING's FX analyst Francesco Pesole notes.

1.070 is well within reach before month-end

"As our ECB watcher, Carsten Brzeski, points out the drop in September's headline inflation was in line with the ECB's own projections, so it must have been the grim PMIs that tilted the balance to the dovish side yesterday. Lagarde repeated at least twice that the ECB is data-dependent and not data-point dependent, but a dovish reaction to an activity survey would instead point to the latter."

"If indeed the focus is now more on growth, we can probably conclude that the ECB will keep cutting, as the activity outlook will hardly improve much in the near term. Markets agree and are pricing in 100bp of easing in the next four meetings (December, January, March, April). That is probably the maximum the ECB can deliver, and there are risks of some hawkish repricing helping front-end euro rates around the turn of the year."

"But with regards to the near-term picture, the euro is left weaker, with more limited room for a rebound as the two-year swap rate gap with the dollar is now at -140bp, the widest since May. This is consistent with EUR/USD trading below 1.080, and given the risks are skewed to a firmer USD into a closely contested US election, 1.070 is well within reach before month-end."