Synopsis:

Société Générale has updated its outlook on EUR/GBP, raising the floor for buying the currency pair from 0.8500 to 0.8600. This adjustment reflects the ongoing economic and political uncertainties in the UK, which may limit the pound's resilience against the euro.

Key Points:

• Bank of England's Recent Decision: The MPC’s decision to hold rates steady was expected. The market's fluctuating expectations for a rate cut reflect uncertainty about the timing of policy easing, with a fine balance between June and August.
• Rate Differential and Currency Valuation: The current EUR/GBP levels are considered low relative to shifts in rate differentials between the UK and the Eurozone. Historical comparisons suggest that the pound may be slightly overvalued.
• UK's Economic and Political Landscape: SocGen highlights potential challenges due to the UK's political climate and fiscal constraints, which could affect GBP's performance.

Conclusion:

SocGen sees a shift in the strategic buying levels for EUR/GBP, suggesting increased caution towards GBP strength. The bank anticipates that GBP may underperform against major European currencies through the end of the year, advising a more conservative approach to trading EUR/GBP based on recent and expected shifts in monetary policy and broader economic indicators.