EUR/GBP: Delta variant risks to provide a selling opportunity around 0.8660 – Credit Suisse

Economists at Credit Suisse think the UK government’s seeming commitment to fiscal prudence is preferable in the long run for GBP than overreliance on QE-funded budget deficits. They look to sell EUR/GBP around 0.8660 if school-opening-related Delta fears drive the pair higher in the coming weeks.

See – EUR/GBP: Sterling may find hard to reach the 0.84 year-end forecast – Rabobank

The odds the BoE chooses to look through Delta-related temporary weakness remains reasonable

“The plans suggest the UK government is committed to some degree of budget discipline longer-term. This is surely a better situation for the currency, in the long run than one where instead the government was actively looking to maintain its current pandemic policies of spending with abandon and relying on the Bank of England to plug the gap by using its digital printing press.”

“We note that the BoE’s new chief economist Huw Pill is seen as a relative hawk based on previous research work. This means those hoping for a dovish tilt after the hawkishness of the previous incumbent Andy Haldane could be disappointed. We expect a cleaner hawkish message to emerge in Q4, assuming the Delta variant does not derail the UK economy.”

“Still, we suspect the next few weeks could see more focus on Delta variant risks as schools start again in England and infection numbers begin a new rise. This could weigh on GBP on the margin, and as such we retain our Q3 view that the best trade location for selling EUR/GBP is around 0.8660. In this context, we set a sell order at that level, with a stop loss at 0.8720, retaining a longer-term target of 0.8300.”