ING Comments on Euro, Sweden's Krona, Czech Republic's Koruna, Poland's Zloty

Eurozone inflation re-accelerated from 2.2% year-over-year to 2.4% in December, a largely base-effect-driven move that was fully expected, said ING.

The core rate was unchanged at 2.7% year-over-year.

The European Central Bank's survey of inflation expectations showed a significant rebound from 2.1% to 2.4% for three years ahead, but ING doubts any of Tuesday's numbers will be enough to make the ECB tweak its dovish narrative at this stage. Markets agree and are still pricing in four cuts this year.

The bank's short-term fair value model still returns a 1.3-1.5% risk premium in , which is above the 1.5 standard deviation and in theory a buy signal. However, the strong United States macroeconomics story is fighting technical short-term bullish factors on the pair.

Incidentally, markets won't necessarily need to completely close that risk premium anytime soon, as part of it is still generally justified by downside risks to the eurozone on the back of U.S. President-elect Donald Trump's protectionism threats.

There is only a speech by French central bank Governor Francois Villeroy de Galhau in the eurozone calendar on Wednesday. may find decent support at 1.0300 for now, wrote the bank in a note.

Sweden's inflation figures released Wednesday came in less hot than expected, with headline CPIF slowing down to 1.5% year-over-year and the key core measure — CPIF excluding energy — decelerating from 2.4% to 2.1% in December.

That further endorses ING's view that the Riksbank will take rates to the 2.0% mark with two back-to-back 25bps reductions on Jan. 29 and March 20. Markets are broadly pricing in a similar scenario, meaning the impact on the krona (SEK) shouldn't be material.

Three-month historical volatility on has plummeted of late and is at the lowest since 2021, a quite welcome development for the Riksbank which is likely to tolerate the pair trading around 11.50 while still flagging the krona's rebound potential, stated ING.

Sweden's sounder economic prospects compared with the eurozone means that in the event of Trump's tariff threat materializing, the Riksbank shouldn't have to cut rates as much as the ECB. That explains the bank's view of a stable or modestly lower in the 11.30-11.50 range for most of this year.

For now, and seem to have no intention of catching up with the slide from late last year and in recent days. As a consequence, ING is becoming more convinced that the focus will remain on the local story regardless of the global context. Rates and monetary policy play a major role for now and a hawkish shift by both central banks will keep currencies supported going forward.

ING still believes the risk on the Czech central bank (CNB) is now on the dovish side versus market pricing and any hint of a return to rate cuts by the central bank should lead to a weakening of the koruna (CZK).

In Poland, the situation seems more balanced from a market pricing perspective, which may be more hawkish from current levels in the bank's view. As such, may retest 4.250 soon with the central bank (NBP) meeting next week, where the governor may confirm the hawkish view presented in December, added ING.