EUR/GBP: Sterling faces downside risks – ING

ING’s Francesco Pesole sees limited further downside in EUR/GBP after the cross fell to 0.870 on Sterling’s (GBP) sensitivity to the equity rally. With European Central Bank expectations likely to stay sticky while Bank of England (BoE) pricing can be repriced more dovishly if energy prices fall, Pesole expects BoE communication to support a move back towards 0.880 in EUR/GBP this quarter.

BoE repricing may lift EUR/GBP

"We struggle to see much downside potential in EUR/GBP following the drop to 0.870, which largely reflected sterling’s higher sensitivity to the sharp equity rally."

"... EUR rate expectations may prove sticky, while Bank of England dovish repricing could come through more smoothly if energy prices keep declining. After all, the BoE was already ready to cut before the war began, and we have a conviction view that second‑round effect risks in the UK are significantly lower than in 2022."

"Some BoE speakers (Governor Andrew Bailey, as well as Catherine Mann and Megan Greene) next week could offer markets an opportunity to trim pricing below one hike this year (currently 30bp), providing some bullish fuel for EUR/GBP. We still expect the pair to return to 0.880 this quarter."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)