The euro was seeking support near $1.12 against the dollar, with ING strategist Francesco Pesole saying a firmer European Central Bank tone could support the currency even as French bond spreads and energy costs weighed on sentiment.
ING said EUR/USD was testing 1.120 after the pair advanced earlier in the week. Pesole viewed the ECB's recent hawkish messaging as a possible source of support, while pointing to French debt spreads and energy costs as ongoing pressure on the common currency.
The ECB's published daily reference fixing for Nov. 2 was $1.1216 per euro, close to the support level cited by ING. The fixing is a benchmark and does not show an intraday trading price.
ING put French spread premia above 150 basis points on Nov. 2, even as oil prices eased. Reuters connected an earlier widening of the French-German yield gap to protests and concerns about France’s public finances and political outlook.
At its Oct. 29 meeting, the ECB left its deposit rate at 2.50%, main refinancing rate at 2.65% and marginal lending rate at 2.90%. It warned that higher energy prices could lift inflation while weighing on growth. The bank said future policy would depend on incoming data and that it had not committed to a particular rate path. ING described market expectations as pointing to at least one more rate increase, but that remains an expectation rather than an ECB decision.
ECB President Christine Lagarde said that if the bank's assessment held, “the direction of travel is clear.” That remark was consistent with the hawkish tone ING cited, while the ECB's written guidance left future decisions dependent on data.
Pesole said the euro-dollar pair might benefit if Democrats swept Tuesday's U.S. midterm elections, though he anticipated little change in sentiment. The Federal Election Commission lists Nov. 3 as the next regularly scheduled federal general election.
The ECB calendar points to Dec. 16-17 for the next policy meeting, followed by a news conference Dec. 17.
