06:03 AM EDT, 04/02/2025 (MT Newswires) -- EUR/USD has softened going into Wednesday's United States tariff event, but price action suggests strong buying interest below 1.080, in another sign that markets aren't ready to adopt a negative, tariff-led euro narrative, said ING.

The bank has been making the case that the euro should embed more tariff downside risks. ING's models suggest that at 1.080 there is no risk premium for EUR/USD.

Should a 20% carpet U.S. tariff materialize, the argument for a EUR/USD decline will become more compelling, but perhaps the bank needs to see even tougher targeting of European Union products or countries to dent the euro's relatively safe status against other high-beta currencies.

Outside of Wednesday's reaction, which may well be EUR negative, things will be more nuanced, stated ING. The European Central Bank may surprise on the hawkish side with a hold in two weeks, and the continuous rotation from U.S. to European assets could also continue to fuel EUR demand.

The bank still likes a decline in EUR/USD and has 1.070 as a target, but it doubts that would be a straight line even if the U.S. surprises with a more aggressive tariff announcement.

The United Kingdom's goods exports to the U.S. are worth just below 2% of gross domestic product compared with 3% for the eurozone. It is no massive difference, but the EU has been much more in the focus of President Donald Trump's confrontational international approach, pointed out ING.

In particular, Trump explicitly opened to a trade deal with the U.K. in previous months, putting British exports at the front of potential exemptions should negotiations follow Wednesday's announcement. The more markets will see room for the initial tariff announcement being watered down via negotiations, the more sterling can outperform the euro.

The bank mostly sees downside risks for EUR/GBP in the near term, with a move below 0.830 very much possible. In the longer run, there will be room for a rebound as the Bank of England rate expectations can be repriced lower.

The only event in the Central and Eastern European (CEE) region on Wednesday is the meeting of Poland's central bank (NBP), which is likely to leave rates unchanged again at 5.75%, added ING. The central bank released its new forecast at the March meeting, so no action here and the statement probably doesn't have much potential to surprise either.

However, after surprisingly low inflation numbers in recent months, the latest released this Monday, the bank sees some likelihood that someone from the dovish camp could suggest a rate cut. It's hard to find a majority for that proposal at this point, but even the motion itself would be a turning point for markets.

As always, Thursday will be followed by the governor's press conference, which is likely to continue the hawkish tone markets saw in March.

Markets have moved into full dovish mode over the past few weeks and Tuesday ING saw another drop across the rates and bonds curve. The market at this point is pricing in roughly 115bps of rate cuts this year and a terminal rate somewhere near 4%.

This is a bit more than ING expects in its forecast, but it's still a possible scenario. At the same time, if the bank sees a motion for a rate cut, markets will likely start pricing more rate cuts.

As a consequence, ING estimates the balance of risks on the dovish side despite the press conference being hawkish in tone. This is building the risk of further weakness for the zloty (PLN) and the bank still sees EUR/PLN above 4.200.

However, as across CEE, the focus will be on the U.S. tariff story today, which is likely to dominate unless markets see some surprises in Poland.