06:14 AM EST, 12/03/2024 (MT Newswires) -- French political drama sent EUR/USD below 1.05 on Monday, said ING.

Rate spreads have pushed out towards their largest of the year as financial markets assume pressure is only going to grow on the European Central Bank for rate cuts if governments in France and Germany are out of order, noted ING.

EUR/USD may not need to fall much further from here at the moment, stated the bank. There is some upside risk if US JOLTS data disappoints on Tuesday. However, any EUR/USD correction may be limited to the 1.0550 area. ING expects EUR/USD to pay increasing attention to the French-German bond spread and the French sovereign CDS to see how far investors are prepared to push French sovereign risk.

Central and Eastern European foreign exchange continues to diverge with Hungary's forint (HUF) weakening further following Moody's decision to change the rating outlook from stable to negative and also lower EUR/USD, wrote the bank in a note. On the other hand, Poland's zloty (PLN) and the Czech Republic's koruna (CZK) continue to gain.

While ING believes this part of the region should follow HUF, tactically the bank sees reasons for further gains here this week.

Both PLN and CZK markets underperformed the rally in euro (EUR) rates Monday, further stretching rate differentials to support the currency, added ING. In CZK in particular, ING sees a renewed relationship between rates and foreign exchange, which could lead below 25.200 EUR/CZK this week.

PLN isn't showing such a strong relationship but is likely helped by the closure of earlier short positioning, which is dampening the pullback of lower EUR/USD. Additionally, the press conference of Poland's central bank on Thursday has the potential for some hawkish repricing, which would add additional impetus to PLN and ING could see levels below 4.280 in EUR/PLN this week.