05:59 AM EST, 11/21/2024 (MT Newswires) -- EUR/USD looks to have been hit by events in Ukraine this week as the war with Russia goes through a period of escalation with both sides seeking to gain ground ahead of potential ceasefire discussions early next year, wrote ING in a note.

That the United States Biden Administration is providing more support before year-end warns of a more aggressive Russian response -- a development which is weighing on European currencies and starting to show up in higher natural gas prices, stated ING.

Europe's gas inventories are now fractionally below their five-year average for this time of year. ING recalled the spike in gas prices in 2022 and the damage they did to European currencies.

At the same time, financial markets have the European Central Bank publicly debating the potential inflationary impact of incoming U.S. President Donald Trump's impending tariffs and what they mean to the easing cycle. Hawks think the tariff effects could be meaningful, but the doves disagree, pointed out the bank.

On Thursday's agenda, markets have the full range of doves and hawks speaking and collectively they perhaps won't move the needle on the 30bps of easing priced for the December ECB policy meeting. This leaves EUR:USD swap differentials very wide in the US dollar's favor, and combined with the threat of some soft flash November PMI numbers across Europe on Friday should keep EUR/USD subdued in its 1.05-1.06 range on Thursday, added the bank.

Elsewhere, EUR/CHF remains on the low near 0.93. In August, ING had felt that EUR/CHF would move little for the rest of the year and recent events only add to that conviction. What interests the bank is whether the Swiss central bank (SNB) will take rates below 0.50% in this easing cycle. ING thinks not.

Spread compression should weigh on EUR/CHF as the ECB cuts rates 150bps into next summer. The bank expects EUR/CHF to grind towards 0.92 -- with the main risk now probably being an SNB official saying the policy rate could go negative again after all.

The Central Bank of Turkey (CBT) is expected to leave rates unchanged at 50% on Thursday, according to ING. The main focus will be on the central bankers' tone and forward guidance for the first rate cut.

In the latest inflation assessment, while acknowledging slower-than-expected disinflation so far, the CBT pointed out a deceleration in underlying inflation last month, driven by lower core goods inflation and a more pronounced loss of momentum in services excluding rent. The bank thinks that the CBT will wait to see further inflation data, however, given the dovish signals contained within the latest inflation report release. Yet chances of a December cut have increased, in ING's view.

The lira (TRY) saw a significant sell-off earlier in the week and a spike in the borrowing rate indicating some closing of carry trades and probably concerns of an overly dovish CBT on Thursday, noted ING. However, markets quickly returned to normal and after moving up to 34.600 USD/TRY markets returned to 34.455 on Wednesday.

Even though the first rate cut is imminent, the bank believes the carry trade will remain a popular position with ING predicting 35.000 USD/TRY at year end.