ING Comments on Euro, Hungary's Forint, Poland's Zloty, Czech Republic's Koruna

Tuesday's USD-negative events have prompted a return to 1.030 in , but ING expects the United States consumer price index to resume pressure on the pair.

The eurozone data calendar doesn't include market-moving releases on Wednesday, although investors will hear from European Central Bank members Philip Lane, Luis De Guindos, Francois Villeroy de Galhau and Boris Vujcic.

ING's short-term fair value model returns a risk premium of around 2.5% to . That is intuitively linked to expectations of U.S. protectionism, and the bank doubts there is that much room for this valuation gap to be closed despite the latest reports on gradual tariffs.

ING pointed out it cannot ignore this relatively supportive technical aspect for , and probably another material leg lower in the pair does require some rewidening in the short-term rate differential. A 0.3% month-over-month U.S. core CPI read couldn't be enough to take sustainably above 1.020 for now.

Finally, some good news for the Gilt market, stated the bank. December's United Kingdom inflation — released Wednesday — slowed more than expected. Services CPI, which is what the Bank of England is mostly focused on, came in at 4.4% year over year versus the consensus of 4.8%. Core CPI slowed from 3.5% year over year to 3.2% and headline from 2.6% year over year to 2.5%.

The bank expects Gilts to show some signs of relief on Wednesday. ING has been calling for the Bank of England to cut rates by 25bps in February and that reinforces its view. Before the release, markets were pricing in 17bps for February.

Sterling would have normally tanked on the back of a soft inflation print but is instead flat, wrote the bank in a note. That is another testament to it currently acting like an emerging market currency, being more sensitive to long-term borrowing costs than the short-term central bank outlook.

had a good run on Tuesday, but largely on the back of strong euro (EUR) performance, pointed out ING. It's too early to turn optimistic on a sterling rebound, but some recovery in the U.K. bond market is a necessary condition for preventing new major foreign exchange sell-offs. Still, looking a few months ahead, Wednesday's CPI print points to BoE cuts that should allow sustained GBP depreciation.

Wednesday will be the first meeting of Romania's central bank (NBR) this year. In line with market expectations, ING sees rates to remain unchanged at 6.50%. ING estimates persistent inflation risks as shown by the December inflation numbers released on Tuesday.

While economic growth concerns aren't to be taken lightly, the bank believes NBR will need to see its risk heatmap turning less red before proceeding again with its cautious easing cycle.

Overall, ING now only predicts 50bps of rate cuts in 2025, scheduled for the second half of the year, taking the key rate to 6.0%. The bank believes NBR will wait for more clarity on the inflation and fiscal outlook before continuing its cautious easing cycle.

The bond market remains heated after the political drama late last year. Tuesday, ROMGBs saw the first signs of relief after a rapid sell-off since the start of this year. However, markets are bracing for another strong bond supply this year and with the presidential election date pushed back, markets will remain in policy uncertainty for longer, lacking good news to turn the market's direction, added ING.

In the foreign exchange spot market, the situation remains unchanged with around 4.975 and the bank doesn't forecast much change anytime soon. On the other hand, the foreign exchange forward market remains significantly volatile. While it priced out all NBR rate cuts late last year, in recent weeks and especially after the postponement of the presidential election from March to May, the foreign exchange implied curve started to steepen with growing speculation of moving higher after the election, according to ING. However, the bank believes this move is more likely to be on the table later in Q3.

The eurozone calendar is quiet this week and should remain primarily driven by the dollar, said ING.

That said, there remains very little support domestically for the euro, wrote the bank in a note. Monday's interview with the European Central Bank Chief Economist Philip Lane is a good snapshot of the Governing Council's current stance.

Lane said that "if the economy is not growing quickly enough, we will undershoot our target," and also discussed the structural and cyclical growth concerns for the eurozone. ECB's GC member Olli Rehn made the case for rates being cut to neutral by mid-2025.

With yet another nudge by the ECB to market expectations and the lack of data releases, ING expects pricing to remain sticky around the 90bps-100bp of easing by year-end. That means the rebound in the EUR two-year swap rate started in January may stall before reaching 2.50%, and a potential hawkish repricing in the USD curve could reduce undervaluation gap — currently around 2.5%.

United Kingdom Gilts have remained under pressure, following the global bond underperformance, stated the bank. There is now a tangible risk that 10-year yields will be trading above 4.90% before Wednesday's U.K. consumer price index print. Should that come in hotter than expected, selling pressure can intensify into the 5.0% handle and potentially beyond.

While sterling generally appreciates on inflation surprises, its current indirect correlation with rates means the risks are definitely skewed to the downside, pointed out ING. The rise in borrowing costs is eroding the U.K. government's fiscal headroom and incrementally raising the risk of spring spending cuts — which are, incidentally, negative for sterling.

Things can stabilize in the Gilt and GBP markets over the coming weeks, but Cable may still drop to 1.200 in the very near term before finding support.

Inflation in the Czech Republic surprised "significantly" to the downside Monday at 3.0% in December versus the 3.3% central bank (CNB) and market forecast, added ING. Although the main reason is lower food prices, the bank could see prices falling across the consumer basket.

This gives a good chance of a lower January number, which led ING to revise the CNB forecast and it now expects a restart to the cutting cycle as early as the February meeting versus March in its previous forecast.

The koruna (CZK) market reacted with a sharp depreciation Monday and given the divergence between rates and foreign exchange in recent days, the bank expects more depreciation. The rate differential is currently pointing to 25.40 , which is also the CNB forecast.

ING also saw some spillover into the zloty (PLN) market on Monday and the divergence seems to be closing here as well, which would point to 4.280-290 . However, the press conference at Poland's central bank (NBP) on Friday will again be more of a reason to see lower.

With United States rates rising and the US dollar up 8% since late September, it wouldn't be a surprise to hear central bankers turn a little less dovish to provide some support to their "beleaguered" currencies, said ING.

However, in Hong Kong on Monday, European Central Bank Chief Economist Philip Lane preferred to say that without cutting rates further, the ECB inflation target would be at risk, wrote the bank in a note. As a consequence, it seems that the ECB isn't particularly concerned by the soft levels as calls for parity grow louder.

The eurozone data calendar doesn't look particularly "exciting" this week, although a break of 1.0200 may need to wait for some of that stronger U.S. inflation data, stated ING. 1.0200-1.0250 could well be the range on Monday.

Sterling continues to trade on a soft footing and its losses could extend this week, according to the bank. Wednesday will be the most important day for sterling given that is when December the United Kingdom consumer price index data is released.

Sterling may well get hit regardless of the number that comes out. Sticky inflation and what it means for the Bank of England cycle could spell more trouble for the UK Gilt market, pointed out ING.

The bank will also look out for a four billion pound auction of 10-year gilts on Wednesday to gauge investor demand. Alternatively, a soft CPI number — for example, CPI services coming in below the 4.8% year-on-year consensus — could see short-dated GBP interest rates finally turn lower as the market re-prices more BoE easing.

In other words, sterling gets hit under both scenarios, added ING.

In the background, the overriding view remains that the U.K. government will probably be forced to announce spending cuts on March 26. This will feed into a tighter fiscal/looser monetary/weaker sterling narrative.

does now risk 1.20 multi-day, while looks biased to 0.8450.

Central and Eastern European currencies continue to ignore the record low , and over the last three days, even the rate differential hasn't meant much, added the bank. On the contrary, ING sees further gains across the region. and in particular mark the biggest divergence from rates.

may find justification for the current lower levels thanks to Poland's central bank meeting this week and its governor's hawkish tone, which may trigger further outpricing of rate cuts and support the currency (PLN).

will see inflation numbers on Monday, which will indicate how likely rate cuts are in February and March. Given the dovish market expectations, ING is rather negative on the Czech koruna (CZK) from current levels and 25.00 may be the best CZK level near term.

undervaluation has again exceeded 2.5% as foreign exchange and short-term rate dynamics continue to diverge, said ING.

When the EUR:USD two-year swap rate gap was last at the current -175bps (November), was trading around 1.05, wrote the bank in a note.

This tells ING that markets are pricing a good deal of negatives into the euro at this stage, and perhaps the euro may be penalized less than other G10 currencies should United States payrolls come in strong on Friday.

can find decent support at 1.0250 or at the Jan. 2 low of 1.022, stated ING.

One positive development for the euro has been the correction in TTF natural gas prices, now at EUR45/Mwh after having touched 50 euros at the start of January, pointed out the bank. Markets have seemingly been reassured by forecasts of milder weather in Europe and robust liquefied natural gas supply from the U.S.

There is also some ongoing discussion within the European Union — championed by Slovakia — to potentially reactivate the Ukraine gas pipeline.

The 10-year Gilt stabilized around 4.80% on Thursday, which has allowed sterling to partially recover after hitting a 1.224 low early Thursday, added ING. What has helped calm market nerves was a comment by a top United Kingsom Treasury official who claimed: "meeting the fiscal rules is non-negotiable."

In practice, this means that since the rise in yields has eroded the fiscal headroom, Finance Minister Rachel Reeves is more likely to deliver some fiscal consolidation should the updated OBR forecasts — released March 26 — show the government isn't on track to meet the fiscal rule. That consolidation means higher taxes or lower spending - with the latter generally deemed more likely at this stage.

The market seems to be acknowledging the U.K. Treasury's reiterated fiscal pledges and this has prevented the Gilt and sterling selloffs from becoming disorderly. This isn't a sovereign crisis, and the rise in yields is — so far — justified, noted the bank.

This suggests some short-term respite for sterling. In the coming months, ING expects fresh pressure on GBP on the back of much larger easing by the Bank of England compared with pricing; which may coincide with the fiscal tightening mentioned above.

Friday, the U.S. leg could add some extra pressure on , but if Gilts have another quiet session, the pair should attract buyers in the 1.225-1.230 area.

ING saw a strong divergence in Poland's zloty (PLN) and the Czech koruna (CZK) on Thursday and both currencies seem too strong. Friday the U.S. market will lead the market.

For the zloty, next week's central bank meeting may provide further downside support for . Also, as the pair remains within the bank's preferred range of 4.260-4.280, ING doesn't see strong reasons to take a contrary position.

In the case of , ING sees more of an upside bias and any levels closer to 25.00 may be interesting for the market to go short CZK ahead of inflation numbers and some Czech central bank headlines next week given the hawkish market pricing.

remains fragile as United States rates remain relatively firm, higher U.S. Treasury yields undermine risk conditions and U.S. tariff threats loom large, said ING.

EUR:USD two-year swap rate differentials are actually narrowing a little in favor of the , but this week has proved that any gains can quickly be wiped out by the U.S. trade story, wrote the bank in a note.

German November industrial production has come in a little better than expected on Thursday but is unlikely to move the needle for , stated ING.

The bank's best understanding of Wednesday's sterling sell-off is that the global bond market sell-off touched a raw nerve in the gilt market and that then the gilt spread widening prompted investors to cut back on overweight sterling positioning.

Perhaps most relevant for GBP is the positioning data, where investors had felt that sterling could best withstand the over-riding strong US dollar trend, pointed out ING.

The gilt sell-off has however dented that confidence in sterling and the risk now is that sterling longs get pared as investors reassess sterling exceptionalism. The bank doesn't see very strong reasons for the gilt sell-off to extend for local United Kingdom factors, but there now looks to be some modest downside risks for sterling.

ING looks for some more consolidation on what should be a quieter day. 1.0290-1.0330 may well be the extent of the EUR/US range.

Foreign exchange remains in a bit of a holiday mood in the Central and Eastern European region despite the busy global story, according to the bank. Hungary's forint (HUF) saw some relief on Wednesday, but ING sees little chance of this being the start of a broader rally here. For now, we see stabilization at these levels in the 414-416 range.

Positive momentum can be gained by more closures of large short HUF positions, however, the bank doesn't see much reason for the market to move in that direction at the moment given that the consensus seems to be heading for higher levels later, which is ING's baseline as well with 420 at the end of Q1.

Eurozone inflation re-accelerated from 2.2% year-over-year to 2.4% in December, a largely base-effect-driven move that was fully expected, said ING.

The core rate was unchanged at 2.7% year-over-year.

The European Central Bank's survey of inflation expectations showed a significant rebound from 2.1% to 2.4% for three years ahead, but ING doubts any of Tuesday's numbers will be enough to make the ECB tweak its dovish narrative at this stage. Markets agree and are still pricing in four cuts this year.

The bank's short-term fair value model still returns a 1.3-1.5% risk premium in , which is above the 1.5 standard deviation and in theory a buy signal. However, the strong United States macroeconomics story is fighting technical short-term bullish factors on the pair.

Incidentally, markets won't necessarily need to completely close that risk premium anytime soon, as part of it is still generally justified by downside risks to the eurozone on the back of U.S. President-elect Donald Trump's protectionism threats.

There is only a speech by French central bank Governor Francois Villeroy de Galhau in the eurozone calendar on Wednesday. may find decent support at 1.0300 for now, wrote the bank in a note.

Sweden's inflation figures released Wednesday came in less hot than expected, with headline CPIF slowing down to 1.5% year-over-year and the key core measure — CPIF excluding energy — decelerating from 2.4% to 2.1% in December.

That further endorses ING's view that the Riksbank will take rates to the 2.0% mark with two back-to-back 25bps reductions on Jan. 29 and March 20. Markets are broadly pricing in a similar scenario, meaning the impact on the krona (SEK) shouldn't be material.

Three-month historical volatility on has plummeted of late and is at the lowest since 2021, a quite welcome development for the Riksbank which is likely to tolerate the pair trading around 11.50 while still flagging the krona's rebound potential, stated ING.

Sweden's sounder economic prospects compared with the eurozone means that in the event of Trump's tariff threat materializing, the Riksbank shouldn't have to cut rates as much as the ECB. That explains the bank's view of a stable or modestly lower in the 11.30-11.50 range for most of this year.

For now, and seem to have no intention of catching up with the slide from late last year and in recent days. As a consequence, ING is becoming more convinced that the focus will remain on the local story regardless of the global context. Rates and monetary policy play a major role for now and a hawkish shift by both central banks will keep currencies supported going forward.

ING still believes the risk on the Czech central bank (CNB) is now on the dovish side versus market pricing and any hint of a return to rate cuts by the central bank should lead to a weakening of the koruna (CZK).

In Poland, the situation seems more balanced from a market pricing perspective, which may be more hawkish from current levels in the bank's view. As such, may retest 4.250 soon with the central bank (NBP) meeting next week, where the governor may confirm the hawkish view presented in December, added ING.