EUR: A bit expensive into tariff event - ING

EUR/USD at 1.084 days before the US is expected to announce harsh tariffs on the EU is a testament to the FX market's hyper forward-looking tendency, ING's FX analysts Francesco Pesole notes.

Euro seems to be embedding too much optimism

"The drivers of the pair's rally have been a re-rating of EU growth expectations based on fiscal spending, and pessimism on US activity. Neither of those factors has been endorsed by hard data just yet, and we remain reluctant to chase EUR/USD higher into the tariff announcement. Our models suggest EUR/USD continues to trade around 0.5% above its short-term fair value, and at -155bp, the 2-year swap rate gap remains too wide to justify 1.09-1.10."

"It's clear that for a sustainable decline in EUR/USD, the dollar needs domestic support through data stabilisation, but the euro equally seems to be embedding too much optimism, and our preference remains for a weakening in the pair in the coming weeks. Should the US opt for high tariffs on all EU products this week, EUR/USD could be driven back towards the 1.070 support. We'll watch EUR/JPY as another key gauge of tariff risk."