ING Warns Bond Sell-Off Adds Euro Headwinds as USD Holds Firm

As of May 18, ING cautions that a bond-market sell-off is weighing on the euro and advises against long positions despite some relief for the dollar. The pair plunged to a low of 1.0720 on May 14 after hotter-than-expected US CPI and retail-sales data revived Fed rate-hike bets and widened policy divergence. Earlier in the period, disappointing Eurozone Q1 GDP (+0.1% q/q), weak industrial production, and soft German ZEW readings had already eroded euro momentum, prompting Rabobank on May 17 to warn that any recovery is likely to stall below 1.20 despite longer-term bullish bank forecasts.