EUR/GBP: UK front-end seen underperforming eurozone – ING

FXStreet Insights Team FXStreet

ING’s Francesco Pesole highlights that Bank of England (BoE) tightening expectations have eased further, with officials sounding less hawkish than the European Central Bank (ECB). He expects United Kingdom (UK) front-end rates to fall more than in the Eurozone, supporting EUR/GBP beyond the near term. Improved risk sentiment is currently weighing on the pair, but rate differentials are expected to reassert themselves once volatility subsides.

BoE caution supports medium-term EUR/GBP upside

"Expectations for Bank of England tightening continued to abate yesterday, with pricing for December falling 10bp to 34bp. Alongside optimism on a conflict resolution, BoE officials continue to sound comparatively less hawkish than their ECB counterparts."

"Yesterday, both Andrew Bailey and Megan Greene stressed again the need to take second-round effects into consideration (which, in our view, will be limited in the UK) and pointed to patience before assessing the policy implications."

"All in all, the latest developments keep us confident with our call that front-end rates have further to fall in the UK than the eurozone and that should offer lasting support to EUR/GBP beyond the near-term."

"For now, the pair is suffering a bit from improved risk sentiment, but rate differentials will return as primary drivers once the dust has settled."

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

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