06:07 AM EDT, 07/05/2024 (MT Newswires) -- The minutes of the June European Central Bank meeting, published Thursday, show some members didn't want to with cut rates, noted ING.

It's increasingly clear that the June move was a consequence of a series of pre-commitments, rather than a strong intent to start an easing cycle, wrote the bank in a note. Indeed, the minutes confirm the centrality of data dependency at this stage, with a particular focus set on wages, whose stickiness is keeping many ECB members on the cautious side when discussing further easing.

At the same time, there appears to be growing confidence in the ECB's staff economic projections by the governing council. Those projections remain rather optimistic on disinflation by end-2025, and will in ING's view justify two more rate cuts by the ECB this year. Market pricing is less dovish, at 38bps.

There is no market-moving economic data in the eurozone on Friday, and EUR/USD will be driven by events in the United States. The bank sees some upside room for the pair on the back of U.S. payrolls disappointment potential. While EUR/USD may move to the upper half of the 1.08/1.09 range Friday, ING thinks the lingering risk of a re-widening in French bond spreads after Sunday's second round parliamentary election means the upside remains capped.

Labour is set to secure a very vast majority in the United Kingdom parliament, according to preliminary results. Keir Starmer's party should secure around 410 of the 650 seats, while the Conservatives are projected to lose 247 seats from the previous election and be left with only 118. The Liberal Democrats are projected at 70.

Labour's lead isn't as large as pre-election polls had suggested, but it makes no difference from a policy perspective given the still huge majority, pointed out the bank.

Sterling didn't move much during Thursday night and early Friday, a clear signal of how a Labour majority had been fully priced in. ING believes the new finance minister can avert spending cuts thanks to small edits of the fiscal rules and minor tax tweaks. However, it will be complicated to avert a rise in taxation further down the line.

What matters for sterling, however, is mostly the implications for Bank of England policy. And for the moment, there are none, according to ING. BoE officials should start speaking again next week after a quiet period before the vote. The bank's view remains that the first cut will come in August, and will be followed by two more in 2024.

In line with that, ING expects sterling to be a laggard in the summer months.

Later Friday, investors will see a decision from the central bank of Romania (NBR). Most of the market surveys expect the cutting cycle to start with a 25bps cut to 6.75%, added ING. However, the bank predicted rates will remain unchanged Friday as in May and the NBR will wait for a new forecast in August.

However, it will be a close call. EUR/RON remains untouched, and ING didn't forecast any changes here before the end of this year. The situation may be more interesting in Romanian government bonds (ROMGBs), which have underperformed their Central and Eastern European (CEE) peers for most of the year and a rate cut could give them some impetus to rally.

Regardless of the timing of the start of the cutting cycle, however, ING sees room for rate cuts capped at just two 25bps cuts for this year.