Policy divergence between the Bank of England (BoE) and the European Central Bank (ECB) bodes badly for the EUR/GBP pair. As economists at ING note, sellers lookout for more downside below 0.8470.
BoE makes the difference
“There are some definite signs of life trying to return to normal in the UK. And the BoE has acknowledged that in its latest Monetary Policy Report and avoided cutting growth forecasts.”
“BoE policy stands in stark contrast to ECB policy. The debate has now switched to whether the ECB loosens policy even further to get inflation back to the 2% target. This could mean a window for EUR/GBP to break lower. A move below 0.8470 warns that the drop extends to 0.8280.”
“One fly in the ointment for GBP is political event risk. The EU:UK has extended the grace period for chilled meats to Northern Ireland until 30 September 2021. Failure to reach a deal then could spark EU tariffs.”
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