06:12 AM EDT, 08/01/2024 (MT Newswires) -- EUR/USD should be doing better now that short-dated United States rates are on the move again, said ING.

The problem is that short-dated euro interest rates are quite soft too as financial markets consider the European Central Bank cutting more than twice later this year. That pricing seems far too aggressive in the bank's view and instead, ING thinks two-year EUR swap differentials will narrow further and provide EUR/USD with a little support.

However, the European manufacturing sector remains in a general malaise -- and a softer Chinese manufacturing PMI overnight Wednesday doesn't help, wrote the bank in a note to clients. This means that the euro isn't seen as the preferred vehicle to express a bearish US dollar (USD) view.

As a consequence, it looks like EUR/USD can stay supported in a 1.0800-1.0850 range for the time being, and its best hope will be some much softer than expected US data.

With US rates dropping and oil bid on Middle East tensions, the Norwegian krone (NOK) might win a few more friends, stated ING. Sellers of EUR/NOK could emerge in the 11.85/90 area.

ING has a longstanding house call that the Bank of England (BoE) will cut rates later Thursday. The bank is sticking to that call. Markets are just about leaning towards that as well, but ING believes that sterling (GBP) will drop if a cut is delivered. ING thinks this cut could be worth a 10bps-15bps drop in 10-year Gilt yields and knock a cent off GBP/USD.

British services inflation, if you strip out volatile items, is on a clear decline and weaker pricing power is very much confirmed in the BoE Decision Maker Panel surveys, pointed out the bank. If the BoE does cut, the consensus is that it won't provide forward guidance on the path of future rate cuts. Yet in May, Governor Andrew Bailey did go as far as to say that markets were underestimating the path of future easing. Any repetition of remarks like those will see sterling sell off some more.

For EUR/GBP, ING sees levels in the 0.8460/80 region should the rate cut be delivered on Thursday.

Later Thursday, investors will see the Czech central bank (CNB) decision. In line with surveys, ING expects a slowdown from 50bps to 25bp rate cuts, resulting in a cut to 4.50%. The central bank will release a new forecast that should see a few changes. However, markets are currently pricing in a roughly 40bps rate cut and, in conjunction with the hawkish forecast revision, weING as such expects a hawkish outcome from Thursday's meeting.

This should support the short end of the curve to the upside and with it the koruna (CZK), which has moved back above 25.400 EUR/CZK under the pressure of aggressive dovish pricing in recent days. In the bank's view, the CZK has decent potential to rally from these levels.