📝 See Risks Of A Dovish Repricing Across EUR Swap Curve: ING FX Strategy

Markets are pricing in a total of 130bp of tightening by year-end, which would imply a 50bp hike at one of the four remaining meetings - after the June one - this year.

Should President Lagarde merely reiterate the previously outlined plans for 25bp hikes in July and September, the market may well be tempted to price some tightening out of the curve for later in 2022 and 2023. We estimate how a change in rate expectations – measured by the EUR 2-year swap rate - would impact EUR/USD. The calculations are based on our short-term fair value model and assume that all the other variables (the USD 2-year swap rate, relative equity performance and global risk sentiment) remain unchanged and are based on the current EUR/USD spot: 1.0700.

While we cannot exclude a hawkish surprise, we see a greater risk that President Lagarde will stick to her recently outlined plan for 25bp hikes in July and September, ultimately raising the risk of some dovish repricing across the EUR swap curve; for EUR/USD this means that the balance of risks appears slightly skewed to the downside. A return to 1.0500 in the coming weeks remains our base-case scenario. - ING FX Strategy