ING’s Chris Turner warns that higher natural gas prices could become a fresh headwind for the Euro (EUR). He reiterates ING’s view that 1.17 remains a fair level for EUR/USD under current assumptions for energy, policy and equities. However, he stresses that further Fed tightening or a spike in natural gas prices would increase downside risks for EUR/USD.

Energy shocks weigh on Euro outlook

“Somewhat ominously, ING’s Head of Commodities Strategy, Warren Patterson, is today warning that the natural gas market is underpricing the risks of lost supply in the Persian Gulf. One of the saving graces for the eurozone this year has been that natural gas prices have spiked nowhere near as high as they did in 2022, meaning that the negative shock to the eurozone’s terms of trade has been nowhere near as large. Should Warren be correct in that natural gas prices risk a sizeable leg higher, the euro would come under broader pressure.”

“In recent weeks, we have been pitching the story that 1.17 looks a fair level for EUR/USD given our key assumptions for energy prices, central bank policies and equity markets. That is still the case. But any further pricing of Fed tightening or much higher natural gas prices presents increasing downside risks to that 1.17 EUR/USD equilibrium.”

“Expect oil prices to again drive EUR/USD today, with risks slightly skewed more to the 1.1630/50 area.”

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