EUR: Room to price in more tariff risk - ING

EUR/USD has softened a bit into today's tariff event, but price action suggests strong buying interest below 1.080, in another sign that markets aren't ready to sink their teeth on a negative, tariff-led euro narrative, ING's FX analysts Francesco Pesole notes.

Carpet tariff may suggest a EUR/USD decline

"The case we have been making is that the euro should embed more tariff downside risks. Our models suggest that at 1.080 there is no risk premium on EUR/USD. Should a 20% carpet tariff materialise, the argument for a EUR/USD decline will become more compelling, but perhaps we need to see even tougher targeting of EU products or countries to dent the euro's relatively safe status against other high beta currencies."

"Outside of today's reaction, which may well be EUR negative, things will be more nuanced. The ECB may surprise on the hawkish side with a hold in two weeks' time, and the continuous rotation from US to European assets could also continue to fuel EUR demand. We still like a decline in EUR/USD and have 1.070 as a target, but we doubt that would be a straight line even if the US surprises with a more aggressive tariff announcement."