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Mar 11 - 02:55 PM

MUFG: BoE Lags Behind ECB & Fed; We Stay Short EUR/GBP

By eFXdata  —  Mar 11 - 01:30 PM


MUFG maintains a short position on EUR/GBP, predicting further GBP strength in the near term as the Bank of England (BoE) is expected to lag the European Central Bank (ECB) and the Federal Reserve in rate cuts. Recent ECB communications hint at a readiness to commence rate reductions as early as June, influenced by downward revisions in inflation forecasts and subdued economic growth expectations. While an April rate cut remains a possibility, comments from ECB officials suggest it is a live option, reinforcing the case for GBP outperformance against the EUR.

Key Points:

  • ECB and Fed Rate Cut Alignment: The timing of the initial rate cut by the Fed is likely to coincide with the ECB's, underpinning the current stability of EUR/USD.
  • ECB's June Rate Cut Indication: Recent ECB updates signal a preparedness to start rate cuts in June, driven by updated forecasts that show inflation returning to target levels amidst slow economic growth.
  • Possibility of an April ECB Rate Cut: Although June is anticipated for the first cut, recent remarks from ECB officials have heightened the likelihood of an April decision.
  • GBP's Near-Term Outperformance: MUFG's strategy is based on the expectation that the ECB will initiate rate cuts ahead of the BoE, supporting a bullish stance on GBP relative to EUR.


MUFG continues to support a short EUR/GBP position, anticipating GBP's near-term outperformance. This outlook is grounded in the expectation of earlier ECB rate cuts compared to the BoE, alongside the alignment of the Fed's rate cut timeline with the ECB's. Recent signals from the ECB regarding potential rate cuts as early as June, with April also being a consideration, bolster the case for GBP strength against EUR in the short term.

MUFG Research/Market Commentary


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