EUR: EU budget has long-term EUR implications - ING

Aside from the very brief spike induced by Powell removal speculation yesterday, EUR/USD looks rather comfortable trading in the low 1.16s. That's despite USD short-term swap rates trading some 4-5bp below yesterday's peak, as risks of the new Fed Chair being an ultra-dove increased, ING's FX analyst Francesco Pesole notes.

Risks are balanced for EUR/USD

"Anything EU-related appears to be playing second fiddle to EUR/USD. We discussed yesterday how French political noise can return in the autumn and generate some FX spillover, but for now it's not showing any tangible impact on FX. On the broader EU level, the European Commission has proposed a €2tr increase in the EU budget, which has already been rejected by Germany."

"There's a long period of negotiations ahead as Ursula von der Leyen aims to gather a unanimous consensus on the budget increase by 2027. We'll hear a lot about this along the way, and the implications for the long-term value of the euro are non-negligible. Moribund eurozone productivity relative to the US has contributed to keeping the medium-term EUR/USD fair value capped in the past decade."

"Back to the short term, we think risks are balanced for EUR/USD and heavily US data dependent. In the coming weeks, we think a move to 1.150 looks more likely than 1.170."