Economists at ING expect the European Central Bank (ECB) to hike by 75 bps at the October meeting. Nonetheless, the hike should fail to offer substantial and long-lasting support to the euro, according to economists at ING.

Hawks can’t lend their wings to the euro

“We see limited upside risks for EUR/USD in the aftermath of the ECB announcement. This is mainly due to the weakened correlation between short-term rates and currency dynamics in the eurozone. This means that additional tightening being priced into the EUR curve on the back of a hawkish statement still looks unlikely to offer a sizeable, and above all, sustainable support to the euro.”

“In line with our expectations of a stronger dollar, as the Fed keeps tightening policy and keeps risk sentiment weak into the new year, we expect a drop below 0.9500 in EUR/USD by the end of this quarter.”