ING Comments on Euro, Sterling, Other European Currencies

After inching back below 1.090, the next move higher for the euro may need to wait for Russia to officially agree on the 30-day truce with Ukraine, said ING.

Still, that may not be a major or long-lasting bullish driver for the euro, as a peace deal is already largely in the price, and the terms of the truce would need to be weighed against longer-term implications for Ukraine and the European Union, wrote the bank in a note.

On the macro side, ING will look at industrial production figures for January in the eurozone on Thursday, which shouldn't move markets. There is also some interest in tracking European Central Bank members' remarks following last week's cut.

Wednesday, European Central Bank President Christine Lagarde said that global trade events will make it "impossible" for the ECB to constantly guarantee 2% inflation. That probably opens the question of whether an overhaul of the ECB's inflation target is due: in practice, this is already being interpreted in a rather flexible way, and only plans of a fiscal boost in Germany have averted rates to be cut to or below 2%, in the bank's view.

Markets remain on the lookout for an official multi-party agreement on defense and infrastructure spending in Germany. A couple of days ago, the Green party said it expected a deal with Prime Minister-to-be Friedrich Merz by the end of the week. Once that is announced, markets could see a tick higher in the euro, although markets are already almost fully pricing it in, stated ING.

The bank's view for the remainder of March remains that a decline to 1.080 is more likely than another rally to 1.10 in .

ING has published a note on the potential reset in United Kingdom-EU relationships and implications for British finances. The conclusion is that while rejoining the single market — or tightening economic ties — would have a beneficial growth effect, that is unlikely to unlock much fiscal headroom. That's because the Office of Budget Responsibility's projection adjustment would likely be spread over multiple years.

The bank still looks with some concern at the upcoming March 26 Budget event in the U.K., which runs the risk of unnerving a gilt market already hit by EU-bond spillover. ING sees downside risks for sterling ahead of the risk event.

Before then, the U.K. releases gross domestic product figures for January on Friday and jobs numbers for February next Thursday, a few hours before the Bank of England rate announcement. That should be a hold — markets pricing in only a 5% chance of a cut — but given expectations for a cut either in May or June, some sort of dovish indication will be required to maintain current pricing in the Sonia curve.

Anyway, ING retains a bearish bias on , although near-term noise linked to the United States macro outlook might still bring the pair temporarily above 1.300.

As expected, Poland's central bank (NBP) left rates unchanged at 5.75% on Wednesday, however the new forecast is interesting, pointed out ING. This year's outlook has been upgraded from the November version in gross domestic product and downgraded in inflation. But the outlook for next year goes in the opposite direction of higher inflation, and the target won't be reached until 2027, added ING.

The NBP staff are clearly looking at the situation from the hawkish side. As a consequence, ING believes Thursday's press conference will be hawkish as well, with an emphasis on higher core inflation, wage pressures, a tight labor market and economic recovery. At the same time, global events may also support the governor's hawkish tone with the promise of fiscal expansion in Germany as a new development since the last meeting.

The bank sees a chance for a repricing up in rates, which are on the dovish side compared with the January and February meetings. Although markets are pricing in about 75bps of cuts for this year, similar to ING's expectations, markets see the first cut in July, the bank estimates a cut in September, and are pricing in another 75bps reduction next year.

So, some hawkish repricing will be supportive for the zloty (PLN), which has seen some correction in the last two weeks. could, as such, head back closer to 4.160 again, according to the bank.

got extra support on Tuesday from the news that Ukraine agreed to a 30-day truce with Russia, but has retreated from the 1.095 highs to just under 1.090 as the dollar started to recover and the European Union announced 26 billion euros of retaliatory tariffs against the United States, said ING.

Markets had already largely priced in a Ukraine-Russia peace deal, and while another small leg higher in may be due if and when Russia agrees to the terms of the truce, the pair can face greater upside resistance on the back of stretched technicals, wrote the bank in an note.

Despite the correction overnight Tuesday, remains around 1.5% overvalued, according to ING's short-term fair value model. Also, the latest CFTC data show positioning has moved back to neutral territory. Speculative net-shorts accounted for only 1.5% of open interest as of March 4, down from 11% at the end of February.

With the U.S. core consumer price index potentially capping dovish sentiment on the Federal Reserve on Wednesday, the two-year EUR:USD swap rate gap may struggle to tighten beyond the -140bps level (now -144bps), and may instead face some rewidening that would make even more expensive at current levels, stated the bank. There is also a risk that either European Central Bank President Christine Lagarde or any of the many other ECB speakers on Wednesday will sound slightly more dovish after the EU's retaliatory tariff announcement.

At this stage, ING thinks a drop to 1.080 is more likely than a rally to 1.10 in .

Poland's central bank (NBP) is likely to leave rates unchanged at 5.75% on Wednesday, in line with market pricing and expectations, added ING. However, the main focus on Wednesday will be the statement and the new forecast and the governor's press conference on Thursday.

Governor Adam Glapinski again has reasons to leave the hawkish tone unchanged on Thursday, pointed out the bank. At the same time, market pricing is more on the dovish side compared with the January and February meetings.

At the same time, markets saw the February meeting as dovish, given that no new hawkish argument for rates unchanged came in. As a consequence, ING believes the risk is more on the upside for rates.

The market prices the first rate cut around July, which is the first meeting for the presidential election and coincides with the new NBP forecast. The bank agrees that this may be the first live meeting, but given the governor's current approach and the inflation profile not coming down until the second half of the year, ING's baseline is a first cut in September.

If the governor delivers another hawkish speech, it would be positive for the currency, said ING. The zloty (PLN) erased much of this year's gains during March and last week returned to 4.200 for the first time since early February.

This is probably the right level in line with the 135bps rate cuts priced in, according to the bank. However, any signal from the NBP giving cuts in July will lead to a stronger PLN.

received some extra support on Tuesday from the news that Ukraine agreed to a 30-day truce with Russia but has retreated from the 1.095 highs to just under 1.090 as the US dollar (USD) started to recover and the European Union announced 26 billion euros worth of retaliatory tariffs against the United States, said ING.

Markets had already largely priced in a Ukraine-Russia peace deal, and while another small leg higher in may be due if and when Russia agrees to the terms of the truce, the pair can face greater upside resistance on the back of stretched technicals, wrote the bank in an note.

Despite the correction overnight Tuesday, remains around 1.5% overvalued, according to ING's short-term fair value model. Also, the latest CFTC data show positioning has moved back to neutral territory. Speculative net-shorts accounted for only 1.5% of open interest as of March 4, down from 11% at the end of February.

With the U.S. core consumer price index potentially capping dovish sentiment on the Federal Reserve on Wednesday, the two-year EUR:USD swap rate gap may struggle to tighten beyond the -140bps level (now -144bps), and may instead face some rewidening that would make even more expensive at current levels, stated the bank. There is also a risk that either European Central Bank President Christine Lagarde or any of the many other ECB speakers on Wednesday will sound slightly more dovish after the EU's retaliatory tariff announcement.

At this stage, ING thinks a drop to 1.080 is more likely than a rally to 1.10 in .

Poland's central bank (NBP) is likely to leave rates unchanged at 5.75% on Wednesday, in line with market pricing and expectations, added ING. However, the main focus on Wednesday will be the statement and the new forecast and the governor's press conference on Thursday.

Governor Adam Glapinski again has reasons to leave the hawkish tone unchanged on Thursday, pointed out the bank. At the same time, market pricing is more on the dovish side compared with the January and February meetings.

At the same time, markets saw the February meeting as dovish, given that no new hawkish argument for rates unchanged came in. As a consequence, ING believes the risk is more on the upside for rates.

The market prices the first rate cut around July, which is the first meeting for the presidential election and coincides with the new NBP forecast. The bank agrees that this may be the first live meeting, but given the governor's current approach and the inflation profile not coming down until the second half of the year, ING's baseline is a first cut in September.

If the governor delivers another hawkish speech, it would be positive for the currency, said ING. The zloty (PLN) erased much of this year's gains during March and last week returned to 4.200 for the first time since early February.

This is probably the right level in line with the 135bps rate cuts priced in, according to the bank. However, any signal from the NBP giving cuts in July will lead to a stronger PLN.

Friedrich Merz, Germany's prime minister-to-be, is facing obstacles to his plan to push through constitutional reforms to the debt brake before March 25, when the new parliament is seated, said ING.

Monday, the Green party — needed to achieve the two-thirds majority the change requires — said it would oppose the defense spending plan and requested greater environmental guarantees.

The euro dropped on the headline but quickly bounced back when it was reported that the Greens remain open to talks and center-right CDU officials indicated optimism towards an agreement, wrote the bank in a note. The foreign exchange market continues to price in a best-case scenario for the euro, with the spending plan going ahead.

The eurozone calendar is light this week, so developments in German politics and Ukraine-Russia peace talks will remain quite central, stated ING. Still, should mostly be stirred by news coming from the United States.

As a secondary driver, European Central Bank members are starting to deliver their post-meeting remarks. Monday, hawk Joachim Nagel said the ECB isn't moving on "autopilot" on cuts and it's hard to speculate on April's move. Investors will hear from dovish-leaning Olli Rehn on Tuesday and many other Governing Council members later this week.

The bank retains a preference for lower , but markets may not be at the peak just yet as U.S. domestic risks linger and the euro's fundamentals have improved. An exploration above 1.090 may be on the cards, but 1.070 remains the most reasonable target for the month ahead.

The Riksbank's Executive Board testifies before Sweden's parliament on Tuesday, and that can bring about some market-moving headlines, pointed out ING. Markets have heavily shifted on the hawkish side of the spectrum and now expect the central bank to be done with easing.

A key driver of this shift was the set of hot inflation figures for February, but ING suspects markets may be underestimating both the volatility of the consumer price index data and the impact of U.S. tariffs. The risks are skewed to the dovish side — and to the downside for the korna (SEK) — ahead of Tuesday's parliamentary testimony.

remains incidentally quite cheap in short-term valuation terms and signs of instability in European Union sentiment can trigger a rebound above 11.0 this week. ING still favors a stabilization in the 11.0-11.20 range in the next two quarters.

Despite Monday's sell-off in Central and Eastern European (CEE) foreign exchange, the bank remains bullish. Outperforming CEE rates are starting to negatively pass through into foreign exchange due to tighter rate differentials.

Some long positioning from previous days is also playing against the Polish zloty (PLN) and Hungarian forint (HUF). However, hawkish central bank guidance across the board and positive sentiment coming out of Germany and the promise of some progress in Ukraine-Russia negotiations should be positive overall for the region's currencies, especially the zloty and Czech koruna (CZK), in ING's view.

The euro rises to a four-month high against the dollar and a six-and-a-half-week high versus sterling amid the prospect of increased German fiscal spending, ING analyst Francesco Pesole says in a note. The Green party on Monday said they would oppose Chancellor-to-be Friedrich Merz's fiscal package but it was reported they remain open to talks and officials from Merz's Christian Democrats indicated optimism towards an agreement. "The FX market continues to price in a best-case scenario for the euro, with the spending plan going ahead," Pesole says. The euro rises to a high of 1.0921 against the dollar and a high of 0.8446 versus sterling. (renae.dyer@wsj.com)

is consolidating after last week's 4.4% rally, said ING.

The bank hasn't seen anything like that since the early days of the COVID-19 pandemic in March 2020. The narrative of independent United States and European stories stands to lift foreign exchange volatility.

Away from the Russia-Ukraine peace discussions in Saudi Arabia this week, the focus will be on German CDU leader Friedrich Merz and his ability to build a coalition of the fiscal willing to get the 500 billion infrastructure fund through the current parliament.

Merz is currently in discussions with the Greens and reports suggest a vote could take place in the lower house Bundestag on March 18, before the upper house Bundesrat seals the deal on the 21. Headlines on whether the Greens are playing ball this week could trigger some volatility in the euro, stated ING.

On Monday, the March Sentix Investor confidence survey will be released. With little other data this week, the focus will be back on European Central Bank speakers. ING's call is that the ECB will pause its easing cycle in April.

However, markets still price 17bps of rate cuts for that meeting. ING expects the doves and hawks to do battle in the press over the need for an April cut, with Monday's input coming from the hawkish Joachim Nagel in a speech at 2 p.m. CET Monday.

The bank favors a little consolidation in the 1.0770-1.0850 area at the start of the week and suspects that another leg higher will have to come from ECB speakers or significant progress in Saudi Arabia rather than the U.S. macroeconomic/rate side.

has been dragged higher by the fiscal re-rating of Europe, according to the bank. That hasn't had too much impact on the pricing of the Bank of England easing cycle this year, where markets continue to price around a further 50bps-60bp of rate cuts.

The next big local inputs to the United Kingdom story come at the March 20 BoE meeting — no change expected — and the <March 26 Spring Statement from Finance Minister Rachel Reeves — which ING sees as a sterling negative event risk.

Before then, investors could see consolidate in the 08350/8400 area. Risks look evenly skewed here to the upside, with more positive developments out of Europe/ECB re-pricing or to the downside with a refocus on looming trade tariffs.

For , the upside looks a little more difficult and it may struggle to breach resistance at 1.2925/3000 near term.

Near-term Central and eastern European (CEE) currencies will be more of a mixed bag given that rates are outperforming the euro (EUR) market, added the bank. This has so far led to a significant narrowing of rate differentials in Poland's zloty (PLN) and Hungary's forint (HUF) market, which has also built long positioning in the previous weeks. This may be a risk in the days ahead.

However, this week, investors are likely to hear more on the German fiscal plan, which should be positive for CEE foreign exchange, and ING will keep an eye on developments in the Russian-Ukrainian war negotiations.

At the same time, Thursday's Polich central bank (NBP) press conference should bring some support for the zloty. The bank is bullish on CEE currencies this week, especially the picture of PLN and the Czech Republic's koruna (CZK) looks "bright" for the days ahead