06:22 AM EDT, 09/16/2024 (MT Newswires) -- The continuing drop in short-dated United States rates means that at 85bps, the two-year EUR:USD swap differential is at its narrowest level of the year, said ING.

Assuming equities can hold up, this should be a cautiously positive environment for EUR/USD, wrote the bank in a note.

Additionally, ING thinks some further narrowing of that swap differential can come from the eurozone side. Here, 11bps is still priced for an October European Central Bank cut -- something ING believes is unlikely.

On that subject, the bank will hear from three ECB speakers on Monday. Most relevant for markets is probably the 2 p.m. CET speech from ECB Chief Economist Philip Lane. Should Lane pour a little cold water on the chances of an October ECB rate cut, EUR/USD could get a lift.

EUR/USD is currently pressing 1.1100 and the bank thinks momentum and cross-market developments favor a move up to 1.1155.

Sterling continues to trade on the strong side. US dollar softness is the dominant theme and the bank has yet to have much bearish sterling news.

Away from the US Federal Reserve rate decision, the biggest event risk for sterling this week is Thursday's Bank of England meeting. So far, the BoE has avoided any forward guidance on the easing cycle, pointed out ING.

It's unclear whether this will change on Thursday. Instead, a softer BoE profile for rates may have to be driven by the data, rather than being led through central bank communication. Here, Wednesday's release of services inflation data for August may have a greater say in the matter, added ING.

With greater confidence growing in the US dollar's downside, GBP/USD looks like it may head back to the 1.3240/60 area short term, according to the bank.