05:54 AM EST, 11/14/2024 (MT Newswires) -- ING said it has long discussed how the wide short-term swap rate spread between the US dollar and euro is justifying a good deal of the ongoing EUR/USD selloff.

However, when the bank adds other market factors in estimating the near-term fair value of EUR/USD -- such as equities and commodity prices -- there are signs of a growing risk premium in excess of 1.5%.

ING strongly believes that after last week's United States elections financial markets have entered a phase where a euro-negative risk premium will become the new normal given the risks to the eurozone associated with incoming President Donald Trump's foreign/trade agenda.

From that perspective, and looking at historical dynamics, a 1.5% risk premium would still be rather contained, as that can easily amount to over 4% should markets price in more geopolitical and/or protectionism-related risks, wrote the bank in a note.

For now, ING thinks some sort of EUR/USD upside correction is plausible, but the bank still believes markets will take the opportunity to sell the rallies in the pair, and a long-lasting return above 1.070 doesn't seem likely.

Thursday's eurozone calendar includes the first revision of Q3 eurozone gross domestic product and employment figures, as well as the minutes of the October European Central Bank meeting. Those could include a few dovish hints, although markets may still want to see more evidence of a slowdown in data -- like PMIs -- or a lower inflation print before pricing in a 50bps cut in December, added the bank.

Markets took advantage of the pause in the USD rally on Wednesday, giving Central and Eastern European (CEE) currencies some relief, pointed out ING. However, the USD quickly resumed its rally following the release of U.S. inflation numbers, which ING believes will put renewed pressure on CEE currencies today.

Local factors aren't significantly influencing trading at the moment, with global dynamics being the primary driver.

In Hungary, while elevated yields should attract market interest, uncertainty about Hungary's central bank and high EUR/HUF remains a concern, according to ING.