Euro: Schnabel's Optimistic Tone Supports EUR/USD - ING

Eurozone central bank officials' relatively hawkish remarks are providing short-term support for the euro. ING analysts noted that ECB Executive Board member Schnabel's view that eurozone growth risks may be tilted to the upside has reinforced market expectations for a 25 basis point rate hike to 2.50% in September, with another hike anticipated next year. As a result, EUR/USD is currently trading near 1.16761, having previously held support at the 1.1650/60 area and now advancing toward the 1.1700/1710 region.

**Rate hike expectations become key short-term driver**

Recent eurozone economic data has continued to surprise to the upside, providing justification for the ECB to maintain its tightening stance. Schnabel's optimistic tone contrasts with the more cautious stance of some other officials, directly boosting market pricing for the terminal rate. ING analysts stated that while EUR/USD direction is primarily driven by Fed policy and US economic data, the ECB's own rate hike trajectory remains equally important. Should the September hike materialize and the future path become clearer, the euro could sustain its upward momentum.

**Weaker dollar provides supportive backdrop**

Beyond euro-specific factors, expectations of a moderate dollar decline are also lending support to the exchange rate. In its latest forecasts, ING anticipates the dollar will depreciate moderately in the second half of the year, based on the assumption that the Fed will maintain its dovish stance and refrain from further hikes. The firm has raised its year-end EUR/USD target to 1.18. However, in the near term, geopolitical uncertainties and elevated energy prices could still limit the euro's upside, with ING's models suggesting fair value around 1.1600.

**Focus shifts to policy and data divergence**

Despite improved near-term prospects, whether the euro can decisively break through resistance remains to be seen. Market reports indicate that no trade agreement has yet been reached between the EU and the US, and even if one is achieved, its direct impact on the exchange rate may be limited. Going forward, the relative strength of eurozone versus US economic data, along with further comments from policymakers at both central banks, will be crucial in determining whether EUR/USD can effectively clear the 1.1700/1710 zone and challenge higher levels.