ING Holds EUR/USD Year-End Forecast at 1.160 Despite Revised ECB Outlook

Dutch financial services firm ING on Wednesday maintained its year-end forecast for the EUR/USD exchange rate at 1.160, despite revising its outlook for the European Central Bank to include an additional rate hike in December.

Parallel Central Bank Paths

ING's decision to hold its forecast steady stems from the closely aligned interest rate expectations for both the euro and the U.S. dollar, as reflected in short-end swap markets. The bank noted that markets are pricing in similar monetary tightening for both currencies.

• Year-End Expectations: 33 to 37 basis points of hikes are currently priced in for both the Federal Reserve and the ECB.
• Through July 2027: Expectations rise to 80 to 90 basis points for both central banks.

Analysts at ING anticipate that both the Fed and the ECB will each deliver only one more rate increase this year before entering an extended pause. The bank suggests that a similar dovish repricing for both central banks would be a net positive for EUR/USD, as lower U.S. interest rates tend to boost global risk sentiment.

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Supporting Factors and Short-Term Risks

Further support for the euro is expected to come from a concurrent decline in energy prices, which ING believes will coincide with the central bank repricing. Lower energy costs are seen as another positive driver for the currency pair.

However, ING acknowledged that near-term risks for EUR/USD are skewed to the downside. A scenario where Brent crude oil prices climb back towards $110 per barrel and markets increase bets on a Fed rate hike in October could see the pair retest its June lows in the 1.1320–1.1330 range. The bank noted, however, that its own short-term fair value model does not currently support such a move.