06:11 AM EST, 02/03/2025 (MT Newswires) -- The growing prospect of a global trade war and United States tariffs heading for the European Union is a clean euro negative, said ING.

The important two-year EUR:USD rate differentials have widened around 20bps over the last couple of sessions as investors price less easing from the United States Federal Reserve and more easing from the European Central Bank, noted ING.

This, in addition to the increased risk premium for a global trade war, saw EUR/USD touch a new cycle low of 1.0140, wrote the bank in a note to clients. There is now an upside gap to 1.0350, but that only gets filled if there is some rapprochement in North America on Monday or equities fall hard enough to prompt some wide-scale deleveraging of positions to a market very long on the US dollar already.

Presumably tough talk from the EU that it won't be pushed around will be seen as a euro negative, stated the bank. The threat of a major report in April to justify U.S. universal tariffs will see investors retain a sell-rally mindset in EUR/USD.

Sterling has been one of the least badly hit G10 currencies, arguably because the United Kingdom runs a trade deficit with the U.S. and goods exports to gross domestic product are relatively small, pointed out ING. That is putting EUR/GBP under pressure on Monday.

However, ING sees Thursday's Bank of England rate meeting as a possible negative event risk for sterling. Given the broadly positive US dollar environment, however, this looks more like a story for GBP/USD than EUR/GBP.

A bias towards 1.2200 and possibly 1.2100 for GBP/USD looks likely this week, depending on the U.S. trade story, added the bank.

Central and Eastern European (CEE) foreign exchange on Friday saw its first sell-off after several strong days, according to ING. However, markets corrected quickly showing CEE resistance to the global environment.

Still, it tells the bank something about the next move. Poland's zloty (PLN) and the Czech Republic's koruna (CZK) in particular are showing stronger readings than indicated by rates and Friday's move confirms this.

As a consequence, ING continues to retain this negative bias. ING will be watching mainly the CZK this week which should come under pressure after the Czech central bank's (CNB) expected rate cut on Thursday and market expectations of further monetary easing.

As such, the bank predicts 25.350-400 EUR/CZK at the end of the week or higher should the market overreact to the CNB rate cut.