ING Says EUR/USD Could Climb Toward 1.160 as U.S. Market Stabilizes

06:06 AM EDT, 10/21/2025 (MT Newswires) -- EUR/USD remains almost entirely driven by U.S. credit and equity sentiment, and further stabilization could take the pair all the way to 1.160, said ING.

Levels below that will be harder to justify unless the U.S. consumer price index on Friday comes in hotter than expected, wrote the bank in a note to clients.

Meanwhile, the 10-year OAT-Bund spread widened back to almost 80bps early Monday before settling at 78bps. It's a signal that markets were surprised by S&P's unscheduled downgrade Friday, but also that political stability is so far successfully sweetening the pill of budgetary issues for investors, stated ING.

On the European Central Bank front, markets heard from two hawks on Monday: Isabel Schnabel and Joachim Nagel. Nothing new on rates -- as expected -- but Schnabel did stress the importance of strengthening the international role of the euro (EUR).

The ongoing "global euro" campaign by the ECB remains, however, very much tied to any improvements in politically-driven capital market integration, and it seems unlikely to result in major short-term spot appreciation barring another US dollar (USD) confidence crisis. Incidentally, not all the Governing Council may be entirely comfortable with an even stronger euro, even if direct comments on foreign exchange have been rather rare of late, pointed out the bank.

One final theme for the euro amid data scarcity: Russia-Ukraine-Russia war truce, after reports over the weekend about President Donald Trump pushing harder for Ukraine to accept Russia's territorial conditions for peace ahead of a potential three-way (Trump, Russian President Vladimir Putin, Ukrainian President Volodymyr Zelenskiy) summit in Budapest in the coming weeks. Even in a scenario where peace conditions are suboptimal for Ukraine, the euro -- and even more, higher beta European currencies -- could get a decent boost should a truce be agreed on in the coming weeks, added ING.

For now, currency markets have kept the Ukraine story rather sidelined, and will probably require some tangible progress on peace negotiations to actively trade it.

Hungary's central bank (MNB) will very likely leave rates unchanged at 6.50% Tuesday, in line with expectations, noted ING. Tuesday's meeting won't be so much about rates but rather about forward guidance. On the one hand, inflation remains above the tolerance band, and government measures are cutting a significant part (1.5pp).

On the other hand, the economy is weak and continues to surprise downwards. Despite some political noise, the bank believes that the MNB will remain hawkish and the hawkish tone from previous meetings will be confirmed Tuesday.

Markets are pricing in roughly one full cut by the end of March 2026, with a high probability for February as well. However, overall, the market expects only 80bps of rate cuts and the priced terminal rate has returned to 5.70%, well above ING's forecast. Although the bank estimates a hawkish stance Tuesday, the risk for markets is more on the dovish side if it takes into account this market pricing.

If the central bank were to indicate a dovish shift, markets would certainly go for more rate cuts. However, ING thinks this will come later, given the weaker inflation figures in Q1 next year.

For now, at the same time, Hungary's forint (HUF) is also supported by some expectations regarding progress in the ceasefire negotiations between Ukraine and Russia. As a consequence, overall, ING is bullish on HUF now, and markets can probably test the current lows at 388 EUR/HUF.

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