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May 29 - 06:55 PM

ING: Expect Stability in EUR/GBP Around the 0.85 Level

By eFXdata  —  May 29 - 03:00 PM

Synopsis:

ING provides insights into the EUR/GBP exchange rate, emphasizing its recent low trading levels and the influence of fiscal policies and market expectations. The discussion highlights political factors in the UK and anticipates the potential impact of monetary policy decisions on the currency pair.

Key Points:

  • Political Influence: Labour's Shadow Chancellor, Rachel Reeves, has been promoting fiscally prudent policies, potentially shaping market expectations ahead of the UK's general election.
  • Credit Default Swap (CDS) Movements: The UK's sovereign five-year CDS has declined to 25 basis points, suggesting increased fiscal stability compared to previous highs during the Truss government. In contrast, the US CDS has risen to 43 basis points.
  • Interest Rate Expectations: Current market pricing anticipates only 33 basis points of rate cuts from the Bank of England this year, which ING considers too conservative.
  • Support Level for EUR/GBP: ING forecasts that EUR/GBP will maintain support around the 0.8500 level, influenced by both political and economic factors.

Conclusion:

Despite political uncertainties and fiscal discourse within the UK, ING expects the 0.85 support level for EUR/GBP to hold, primarily driven by the disparity between market rate cut expectations and the broader economic and fiscal context. The focus remains on how forthcoming political and economic developments will affect this forecast.

Source:
ING Research/Market Commentary

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