Synopsis:

ANZ outlines a bearish outlook for the EUR, driven by weak EU PMIs and economic headwinds, while maintaining a more positive view on the GBP, supported by strong UK PMIs and growth differentials favoring the pound.

Key Points:

• EUR Outlook:

  • Weak Economic Data: EU August PMIs highlight significant growth headwinds, particularly in manufacturing. German manufacturing PMI is close to a one-year low, while French manufacturing continues to contract.
  • Inflationary Pressures: Data suggests easing inflationary pressures, with Q2 wage growth slowing and PMI price gauges showing little upward pressure.
  • ECB Rate Cuts: The economic data provides limited support for hawkish arguments within the ECB, potentially leading to a faster pace of rate cuts.
  • Bearish View on EUR: ANZ holds a bearish medium-term view on the EUR, especially against the GBP, as growth differentials favor the latter.

• GBP Outlook:

  • Positive PMI Data: UK PMIs indicate a soft landing for the economy, with both manufacturing and services sectors showing improvement in August.
  • BoE Easing Cycle: The firm PMI data and expectations of a steady Bank of England easing cycle position the GBP well for outperformance in FX markets.
  • EUR/GBP Bias: ANZ favors short EUR/GBP positions due to widening growth differentials, expecting the cross to trend lower.
  • GBP/USD Concerns: ANZ highlights the risk of downside pressure on GBP/USD if non-commercial long positions rebuild excessively, making the GBP vulnerable to data surprises or changes in market conditions.

Conclusion:

ANZ expects the EUR to face further downside pressures due to weak economic data and potential ECB rate cuts, while the GBP is well-positioned to outperform, particularly against the EUR, supported by stronger UK economic indicators and a favorable growth outlook. Monitoring positioning data is crucial for detecting potential short-term reversals in GBP momentum.