⚖️💱Short-Term Rates Driving EUR/USD Price: Cable FX Macro

• We recently saw a historic performance in EUR/USD, one that even central bankers from the ECB were vocal. The move is coinciding with a move higher in short-term rate spreads, the differential continues to favour the dollar but to a much lesser extent.

• A recent note from ING FX strategists highlighted a rise in the contribution of short-term swap rate differentials in EU-U.S. to their EUR/US FV model. They signaled that 1.20 could be a possibility given the historical extension of spot vs the FV model.

• June's jobs data surprised market participants as it contrasted with the softer than expected ADP report. This pushed bets out of a July move and yields move higher. As of time of writing, the 2yr EU-U.S. differential stands at 205bps vs 192bps on Wednesday.