Eurozone hedging costs on US assets are falling sharply, strengthening the tailwinds for EUR/USD as the Fed’s easing cycle approaches. In the near term, the pair should remain supported around the 1.1630/40 area with room to test the 1.1700-1.1730 area, notes Chris Turner, FX analyst at ING.
ECB’s Lynn talks about today’s global imbalances
“The cost to eurozone bond investors of FX hedging their US investments is falling. Using three-month forwards, the cost of hedging US risk back into the euro has now fallen to 1.82% per annum from 2.45% in July. This is big for a bond investor trying to, for example, make an extra 150 basis points by investing in US markets. These US hedging costs are expected to fall further as the Fed cuts interest rates. These Buy-side dollar sales in the Eurozone should be a major factor pushing EUR/USD higher in 2026.”
“For today, the Eurozone calendar is light. This afternoon, we have a speech from ECB Chief Economist Philip Lane. The topic is global imbalances. We expect to hear more about the international role the euro plays and more strong encouragement for politicians to press ahead with reforms, so that the euro can benefit from the transition to a multipolar world.”
“Going back to the short term, we have a slight bias for EUR/USD to trade at 1.1700/1730 and continue to find support in the 1.1630/40 area.”
