06:14 AM EDT, 03/19/2025 (MT Newswires) -- As widely expected, the German Lower House (Bundestag) approved the debt break constitutional change on Tuesday, said ING.

There are few doubts that fiscal reform will also make it through the Upper House (Bundesrat) and ultimately be signed into law, wrote the bank in a note. The euro has fully priced in the success of the spending reform and appears close to peak market optimism on the fiscal boost.

ING pointed out that Germany still doesn't have a government and coalition talks may prove tricky. And while the debt break reform unlocks long-term fiscal spending opportunities, structural woes, such as competitiveness and innovation, are still to be addressed.

The bank's view remains that Q2 will bring a reality check for European optimism. With U.S. tariffs likely to hit from the start of April, euro bullish momentum may well fade.

The other key theme for the euro remains the direction of the Ukraine-Russia peace talks, stated ING. Tuesday, Russian President Vladimir Putin agreed to reduce the number of attacks on Ukraine.

However, Putin is still requiring a complete halt to U.S. armaments to Ukraine and refusing to agree to a 30-day truce for now. Also on this topic, the euro is pricing in a good deal of optimism. Should investors see a truce finally being agreed, the extra support to the euro may not be substantial and probably quite conditional on the agreed terms.

As the bank is bullish on the US dollar ahead of Wednesday's FOMC risk event, ING renews its call for EUR/USD to fail a break above 1.100 and instead inch back below 1.090.

GBP/USD broke the key 1.300 resistance on Tuesday on the back of USD weakness, noted the bank. But in the crosses, sterling isn't showing particular strength and EUR/GBP remains close to its January 2025 high of 0.846.

ING doesn't expect Thursday's Bank of England meeting to be a major event for sterling. The bank estimates a consensus hold with only two members voting for a cut.

The United Kingdom budget event later this month is the biggest risk event for sterling, added ING. GBP negative scenarios are predominant as Finance Minister Rachel Reeves may either slash spending, raise taxes or risk unnerving the gilt market. The bank sees upside risks to 0.85 in EUR/GBP near term.

Within the Central and Eastern European (CEE) market, Hungary's forint (HUF) outperformed peers again on Tuesday in line with ING's expectations. At the same time, the approval of the fiscal package in Germany resulted in some decline in core rates and a slight improvement in the rate differential for CEE currencies.

However, the main focus is still on negotiations between the U.S. and Russia. Tuesday brought some small advancements closer to a peace deal, which should be positive for the CEE region, but also shows that markets cannot expect rapid progress, according to the bank.

In Turkey early Wednesday, bonds and foreign exchange are coming under pressure after a potential presidential candidate, the mayor of Istanbul, was arrested. Early Wednesday levels suggest the lira (TRY) fell 1.6% against the USD and jumped above 37.300 USD/TRY, the biggest one-day move in over a year.