05:51 AM EST, 11/12/2024 (MT Newswires) -- The 'Atlantic' spread between the US dollar and euro as some traders call it has widened further, noted ING.

Two-year EUR:USD swap differentials have now widened beyond 180bps in favor of the US dollar. The bank hasn't seen this kind of level since 2022, when EUR/USD was trading close to parity.

Admittedly those parity levels in 2022 were partly caused by the surge in energy prices and the terms of trade impact on the euro -- a negative factor that is not present today, pointed out ING.

EUR/USD looks ready to test 1.0600, below which the bank's end-year target at 1.05 beckons. One-month implied EUR/USD volatility is being brought back up towards 8% having been offered near 6.50% last week.

The only events of note on the European calendar on Tuesday are European Central Bank Governing Council speakers Olli Rehn and Robert Holzmann, who will probably not stand in the way of an ECB rate cut in December. The question is, will it be 25bp or 50bp, asked ING in a note. Financial markets price 30bps. ING thinks it will be 50bps.

Tuesday's September release of United Kingdom earnings data came in slightly stronger than expected and it looks like the downward momentum in private sector pay has started to slow, stated ING. However, this data set has fallen out of favor with the Bank of England and as such markets.

More interesting Tuesday should be an appearance from BoE Chief Economist Huw Pill. The subject of the panel is: "Reversing the great global tightening - how far and how fast?" Pill dissented from the BoE decision to cut rates in August and is as such seen more as a center/hawk on the Monetary Policy Committee.

Markets are already pricing in only a modest BoE easing cycle from here -- just three rate cuts next year. Unless there is a major surprise from Pill Tuesday, that pricing can stay intact. If so, EUR/GBP will struggle to sustain a move over 0.8300/8315 now and should continue to head lower, added the bank.

If EUR/HUF continues to move higher, markets will increase bets on additional measures from Hungary's central bank (MNB) in the form of liquidity tightening or an eventual rate hike. ING believes the MNB is more resilient than in the past, but levels above 410 will raise questions of a policy response again and it will be hard to reverse course in the current negative conditions in Central and Eastern Europe.

The bank expects more pressure on the region in the days ahead.