ING Monthly: The world economy at half-time
The desk is positioning for a mildly bullish outlook on the EUR/USD pair, drawn from the recent ING Monthly report's insights on macroeconomic trends and central bank stances. Per the full note, lower oil prices are expected to ease inflationary pressures in the U.S. and Europe, contributing to a steadier economic environment that could support the euro against the dollar. The Federal Reserve's projected hold on rates until mid-2027 contrasts with the potential for the ECB to pursue one more hike if inflation risks linger, suggesting a divergence in monetary policy. Amid these dynamics, the EUR/USD's current spot at 1.1434 reflects a cautious consensus toward the end of the year, with targets ranging from 1.1200 to 1.2000 across major banks.
What the desk is arguing
The desk anticipates that easing inflation pressures from falling oil prices could bolster the euro relative to the dollar in the upcoming months. As noted in the ING Monthly report, lower oil prices may bring relief to consumers and lead the Federal Reserve to maintain rates in an extended period of stability. The ECB's potential for further tightening complicates the landscape, with several market participants eyeing a possible hike in September depending on inflation trends.
Moreover, the report indicates that the expectation for Brent oil prices to average $80/bbl in Q3 and $74/bbl in Q4 reflects a strategic shift that could influence regional currencies. If inflation risks indeed recede, aligning with expectations from both the Fed and ECB, the euro might gather strength against the dollar, providing a more favorable setting for the pair.
Where it sits in our coverage
The current consensus target for EUR/USD is 1.1750 for December 2026, with a range of 1.1200 to 1.2000 as noted across firms. Specific Dec-26 forecasts include: - Citi: 1.1000 - Commerzbank: 1.2200 - UBS: 1.2000
The desk's positioning aligns close to the middle of this range. While some firms like Citi foresee a weaker euro by Dec-26, others such as Commerzbank remain optimistic, which evidences the divided outlook under prevailing economic conditions.
How other firms see it
Firms aligning with the desk’s view, such as HSBC and Nomura, anticipate a robust euro around 1.1700 to 1.2000, suggesting a bullish sentiment driven by external economic factors. However, contrary perspectives from Citi and Commerzbank indicate a more reserved approach, with targets lower than the median.
Additionally, movements in the USD/JPY pair may reflect broader market sentiments around the Fed's interest rate decisions, indicating the significance of cross-market dynamics at play with this thesis.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Falling oil prices are projected to relieve inflationary pressures, benefiting the euro.
- 02The Federal Reserve is likely to maintain its current rate until mid-2027, contrasting with potential ECB hikes.
- 03Current EUR/USD consensus targets suggest a range between 1.1200 and 1.2000 for future pricing.
- 04Market sentiment is divided, with forecasts indicating both bearish and bullish perspectives on the euro.
Market implications
Traders should monitor the EUR/USD as it hovers around 1.1434, with potential movements influenced by developments in oil prices and central bank statements. Notable focus should be on the ECB's actions later this year.
Risks to this view
A significant escalation in U.S.-Iran tensions could disrupt oil flows and push inflationary pressures higher, potentially leading to a risk-off sentiment that undermines the bullish outlook for EUR/USD. Additionally, any hawkish surprises from the Fed could invert expectations.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Goldman Sachs | — | 1.1200 |
UOB | — | 1.1445 |
MUFG | — | 1.1800 |
Reports Report ING Monthly: The world economy at half-time Published 11:35 After a volatile first half of the year, will the remainder of 2026 be any calmer? Carsten Brzeski Download PDF Executive summary Our key calls at half-time: Oil prices: The quicker ramp-up in flows through the Strait of Hormuz has led us to revise our ICE Brent forecast lower for the remainder of the year. We're now expecting Brent to average $80/bbl in 3Q26 and $74/bbl in 4Q26.
That assumes no meaningful disruptions to flows, which risks proving optimistic after the latest re-escalation in US-Iran tensions. United States: Lower motor fuel prices are bringing relief for consumers, but it also means that inflation has likely peaked, barring a severe escalation in the Middle East. Slowing housing rents, weak wage growth and a waning influence from tariffs should more than offset concerns tied to tech-related inflation pressures.
We expect the Fed to stay on hold until summer 2027. Eurozone: We expect the ECB to sit out the July meeting to see how the situation in the Middle East evolves. But with higher core inflation, the central bank could hike once more in September if inflation risks still provide reason for concern.
China: We expect first-half 2026 growth to be around 4.8% YoY, though a further deterioration in data could increase pressure for greater policy support this year. We now expect the PBoC to cut rates in the third quarter on lower energy prices and potentially softer inflation. United Kingdom: We think the Bank of England will keep rates on hold until next spring/early summer, when we’re likely to see the resumption of gradual rate cuts.
Inflation is unlikely to peak much above 3% this year on our revised energy price forecast. Asia ex-China: Falling oil prices should ease inflation and external pressures across Asia, but second order inflation effects and FX vulnerabilities remain key constraints. Central banks are likely to maintain a tightening bias until price pressures and external balances improve.
FX: We’re mildly dollar negative into year-end and into 2027, largely driven by our Fed view. EUR/USD and USD/JPY can end this year near 1.18 and 158, respectively. Market rates: We expect the US yield curve to steepen from both ends.
Front-end yields should get back below 4%, while the 10yr yield will have a tendency to hug the 4.5% area (and quite potentially test higher). The eurozone curve sees a similar tendency, as the front end calms on reduced rate hike pressure, and the back end holds steady, we think, with the 10yr holding broadly in the 3% area (Germany and Euribor). Included in the following bundle Bundle Published 11:36 ING Monthly: The world economy at half-time This bundle contains 14 Articles Monthly Economic Update Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
Sources & References
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