06:11 AM EDT, 07/04/2024 (MT Newswires) -- European Central Bank officials sent a message of patience from the Sintra event in Portugal, said ING.

There is no pressure to move with back-to-back rate cuts given slower disinflation, and it seems that the preference is also for a wait-and-see approach over verbal intervention when it comes to the recent bond market turmoil, wrote the bank in a note.

At the same time, market expectations for ECB easing (40bps by year-end) were given an implicit nod by some speakers openly discussing the chances of further cuts, stated ING. There is a good probability those expectations will remain quite stable throughout July, meaning that the policy factor shouldn't really be a major driver for EUR/USD.

Developments in the United States remain much more relevant for the pair. The bank had argued for a move to 1.0800 on the back of softer US data this week but admitted that the move came in before ING's expectations given the shockingly low ISM services.

The bank remains somewhat doubtful that financial markets will be comfortable with EUR/USD trading close to 1.09 given lingering uncertainty about French politics and the rising risk of former US President Donald Trump's re-election.

In France, there has been a remarkable tightening in the OAT-Bund 10-year spread, which closed at 66bps on Wednesday from a late-June peak of 82, pointed out ING. The main trigger was the news that numerous center and left-wing candidates had dropped out of three-way runoffs to curb the rise in Marine Le Pen's right-wing National Rally party.

This raises the chances of a hung parliament, which appears a more desirable outcome for markets as it limits the chances of aggressive spending maneuvers. ING's rates team continues to call for a structurally wider French spread and it expects that to weigh on the euro (EUR) throughout the summer.

The United Kingdom votes in its parliamentary election on Thursday. The latest polls confirmed the opposition Labour party has an approximate 20-point lead over the Conservatives and is projected to secure around 431 of the 650 parliament seats.

The bank estimates the first impact on markets at 5 p.m. ET when the exit polls are published by the country's three major broadcasters. It is generally believed that exit polls have a very good predictive power for the final outcome in the UK, added ING. In the past five elections, they predicted the House composition with an average error of only four seats.

The bank has struggled to identify major risks for sterling (GBP) heading into Thursday's vote. Not only because opinion polls have firmly suggested Labour should secure a majority, but also because it seems unlikely that the change in government will influence the policy path for the Bank of England (BoE).

Aside from the seemingly remote possibility of Labour not securing the 325-seat majority, there may be some risks associated with the populist/hard-Brexiteer Reform UK faring better than expected and taking more seats than the Conservatives. That wouldn't have real policy implications for this government, given the projected solid majority for Labour, but could trigger some concerns for the longer term, added ING.

All in all, the bank doesn't expect to change its view on sterling on the back of the election result. ING still predicts larger BoE easing compared with market expectations and remains bullish on EUR/GBP on the back of that.