A few kilometers west of the city of Cuenca is the small town of Baños, not to be confused with the larger tourist town of the same name near Ambato. Baños-Cuenca is a pleasant, peaceful little village named for the hot thermal waters there. The water is channeled into four different commercial complexes, the best of which is the Balneario Durán (open daily 7:30 a.m. - 8 p.m., closes earlier Wednesday and Sunday).
Once you're done at the thermal baths, you can explore the small town, the highlight of which is probably the church, from which there is a good view of the valley. If you wish to have a bite to eat or even stay overnight, your best bet is the Hostería Durán.