06:14 AM EDT, 07/16/2025 (MT Newswires) -- Some headlines about French politics might have gotten into the mix on a bad day for the euro on Tuesday, although no spillover into the OAT-Bund spread means the effect should have been marginal if anything, said ING.

The French prime minister announced that two national holidays would be scrapped to ease pressure on the deficit. That caused the National Rally's Marine Le Pen to threaten to topple the government unless the proposal is lifted. The French deficit story has been very much in the background of late, but on Tuesday probably served as a reminder that it's a "ticking bomb" for European Union sentiment, wrote the bank in a note.

Investors could start seeing some currency spillovers in the coming months, stated ING.

For now, EURUSD remains an extension of broader US dollar sentiment. The bank thinks 1.16 can be a good balance unless data adds much to the United States macroeconomic story in the coming days. Risks are, however, that the US dollar gets a bit more support from hawkish repricing and EUR/USD starts looking at 1.15.

Earlier Wednesday, the United Kingdon reported services inflation was unchanged at 4.7% year-over-year in June, against expectations for a deceleration to 4.5%.

Services inflation held steady, and actually, looking at some of the core services measures (which exclude different volatile/less relevant categories), most of these picked up a bit. Services CPI will probably bounce around these levels for the rest of the year, before coming dramatically lower next spring, noted ING. A fair part of what's driving services inflation right now is chunky price rises that came through in April, most of which are inherently backwards-looking or regulated.

These will drop out next year, which the Bank of England is well aware of. Still, this means the bar to cutting rates faster still feels fairly high -- ING expects cuts in August and November. But Thursday's jobs numbers are key because if the bank sees another bad payroll figure, that would put a lot of pressure on the BoE to shift in a more dovish direction.

Sterling (GBP) is trading modestly stronger after the release, added ING. The risks associated with Thurday's jobs numbers are probably preventing any larger hawkish repricing in the Sonia curve and, by extension, keeping GBP gains contained. Markets continue to price in two rate cuts by year-end, but the recent tendency has been to explore more dovish pricing. A soft jobs print Thursday should send EUR/GBP back above 0.870.

ING pointed out it has been bullish on the Czech koruna (CZK) for some time now. While the bank saw a good rally in June, in July it seems that the CZK has exhausted itself versus the euro (EUR). This wasn't too much of a new story, however, and markets gradually wanted to return to its usual receiving CZK rates, undermining the currency position.

This time, the story seems different, according to ING. Even though markets are only pricing in roughly half of the anticipated rate cut, the bank still sees room for less than that. Investors probably won't see many triggers this week, but next week they could see the first Czech central bank (CNB) interviews ahead of the August meeting, which should bring some hawkish comments.

Overall, ING believes the Czech story remains hawkish and there is more to see here. Short term, Tuesday's spike in CZK rates should support foreign exchange on Wednesday, and the bank thinks that opens up the possibility of going to 24.600 again despite a stronger US dollar, which should lead to overperformance within the Central and Eastern European region.