06:04 AM EDT, 03/14/2025 (MT Newswires) -- The foreign exchange options market had been warning about last week's upside spike in EUR/USD, however, the latest indications suggest that the upside appetite is fading, wrote ING in a note

The one-month EUR/USD risk reversal has softened quite a lot. Last week, this pricing showed a skew for euro (EUR) calls over euro puts of +0.45%. That was the most bullish the market had been in this one-month tenor since 2021, stated ING.

However, that skew has now dropped to -0.14% in favor of euro puts. Helping that switch in sentiment is probably the looming threat of United States tariffs in early April. There seems little love lost between the European Union and U.S. leadership currently, and next month's reciprocal trade tariffs could see the EU hit "hard," pointed out the bank.

At the same time, the market is focusing on developments in the German lower house -- the Bundestag. Center-right CDU leader Friedrich Merz is trying to get the Greens on board to pass constitutional debt-brake reform and the 500 billion euros infrastructure package.

There could be a lot more noise to be had in these negotiations as the Greens try to secure key concessions ahead of a crucial vote next Tuesday. Any headlines that the Greens are refusing to back the bill stand to hit EUR/USD intra-day.

After the close Friday, investors will also see Fitch rating agency's latest review on France. ING thinks it may be too early for Fitch to cut France from AA- after only shifting to a negative outlook last October. The surprise remains how core and peripheral eurozone government bond spreads remain so tight to German Bunds in spite of looming defense spending plans.

Tariff news and German politics are a downside risk to EUR/USD on Friday. Soft U.S. consumer confidence data is an upside risk. 1.0810-1.0880 could be the EUR/USD range on Friday.

As expected, Thursday's press conference from Poland's central bank (NBP) brought a hawkish tone, according to ING. Governor Adam Glapinski touted the strong economy, the administrative reasons behind higher prices and international inflation risk.

Although any cuts this year seemed to be excluded from the governor's communications, the conclusion of the speech suggested that if inflation falls in the second half, there is some chance. ING expects the second half of the year will be more favorable from an inflation perspective and investors should see a rate cut in September. However, markets are focused on the July meeting, which seems less and less likely after Thursday's press conference.

Although markets read the press conference as hawkish, the zloty (PLN) rates didn't have much of a chance to react due to downward pressure from core markets, added ING. However, investors could still see the interest rate differential widening, supporting a stronger currency in line with the bank's expectations from Thursday.

EUR/PLN has moved towards 4.180 and the bank believes there is further room towards 4.160.