06:18 AM EST, 01/20/2025 (MT Newswires) -- A trade conflict involving the European Union is "very likely," European Central Bank Executive Board Member Isabel Schnabel said over the weekend, noted ING.

Perhaps the euro should be concerned that the online prediction markets only have low pricing of tariffs on the EU. this week, wrote the bank.

Equally, ING doubts foreign exchange markets are fully priced to universal tariffs and EUR/USD would get hit were these to emerge.

Away from events in the United States this week, the eurozone's focus will be on a couple of speeches in Davos from ECB President Christine Lagarde, stated the bank.

Currently, markets are pricing 100bps of ECB easing this year, while ING's house view is 125bps. This week also sees the flash PMIs for January. Presumably, there won't have been much of a recovery here as the world awaits President Donald Trump's new economic agenda.

It is hard to know what to expect from the U.S. on Monday at the inauguration ceremony of Trump, but there is a chance that 1.0400/0435 caps any surprise EUR/USD rally on a softer-than-expected tariff story, pointed out the bank. 1.0225 could be the extent of any sell-off should the tariff story come in "hot."

EUR/GBP is staying near the recent high of 0.8450/60. While ING and the United Kingdom sovereign credit default swap market don't think this is a former Prime Minister Liz Truss-style moment for U.K. sovereign risk, the bank thinks the solution to the current challenges is sterling negative.

To resolve the risk of breaching the fiscal rule, either the government needs to cut spending, the Bank of England to cut rates -- lowering Gilt yields -- or both.

There isn't a lot on the U.K. data calendar this week apart from the November jobs data on Tuesday. ING also wonders whether Wednesday's release of the December budget figures will draw greater attention than normal.

But overall, the bank sees little reason for sterling to recover. Above 0.8450/60, EUR/GBP can see 0.8500. GBP/JPY is very much in focus as well given the prospect of the Bank of Japan hiking 25bps this Friday. 185 looks very possible here, added ING.

Central and Eastern European foreign exchange has been in the same mode since the beginning of the year, notably following the direction of the rates market, according to ING. The press conference of Poland's central bank (NBP) last week after it kept rates unchanged brought an extra dose of hawkishness, which ING thinks will shift the EUR/PLN trading range from 4.260-280 to 4.250-270.

The interest rate differential widened by 10bps on Friday and investors are likely to see more on Monday, which will keep PLN supported.

On the other hand, ING remains negative on the Czech Republic's koruna (CZK) given its expectations of a central bank (CNB) rate cut in February, which should push EUR/CZK up towards 25.400.

EUR/HUF is trying to stabilize after high volatility at the turn of the year and the bank sees levels around 412 for now.