06:22 AM EDT, 07/26/2024 (MT Newswires) -- German activity surveys in just three months have gone from showing slower momentum to squashing any optimism for the economic outlook, with the July Ifo published on Thursday falling markedly and feeding the theme that Germany is the sick man of Europe, ING said in a note to clients.

In the medium run, the recent data suggest the steadily declining fair value of EUR/USD will remain depressed, hindering the kind of multi-quarter appreciation that would be consistent with other valuation metrics, stated ING.

In the near term, it may not matter much because financial markets made their call on two European Central Bank cuts some time ago, and a worsening growth picture isn't enough to drive bets to three cuts as long as wages and inflation prove sticky.

Friday, the bank will be looking at the ECB inflation expectations surveys. With even Governing Council hawks like Joachim Nagel implicitly endorsing market pricing by saying the ECB should be able to cut if data stays on course, major swings in ECB pricing appear unlikely.

EUR/USD remains stable amid wide moves in G10 foreign exchange. ING suspects this is down to the euro's liquidity attractiveness, and the bank doubts markets will see a break from the ranges on Friday, with 1.0850 still working as a near-term anchor.

Earlier this week, ING stressed how GBP/USD looked expensive at 1.29 and EUR/GBP cheap at 0.84. As a consequence, the bank welcomed the downside and upside moves respectively of the past two days as a re-alignment with short-term rate differentials.

Those moves might endure as part of a broad-based sterling weakening next week when the Bank of England will - in ING's view - cut rates. The bank expects the BoE will judge the stickiness in services inflation as down primarily to one-off factors and may look at more "core" measures that instead point to a less worrying picture.

Market pricing (-13bps) suggests there is room for a GBP correction, according to the bank.