Fed's Hawkish Stance Drags Euro Down to 1.150
EUR/USD has taken a hit after a more hawkish-than-expected Federal Reserve meeting. Francesco Pesole at ING notes that despite some support from the ECB's stance, higher oil prices have dragged their short-term fair value estimate for EUR/USD down to 1.150.
The two-year swap rate differential has widened by 15bp to its widest since July, with EUR/USD exploring sub-1.14 levels at that time. The increase in interest rates was more significant than expected, and it's had a noticeable impact on the euro.
Pesole also points out that oil prices are significantly higher than two months ago, which is another factor pushing down the fair value estimate. He notes that further moves in front-end rates, oil or global equities can quickly push the fair value lower.