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May 24 - 02:55 PM

ING: EUR/GBP Stabilizing Near the Crucial 0.8500 Level; What's Next?

By eFXdata  —  May 24 - 01:30 PM

Synopsis:

ING assesses the current valuation of EUR/GBP, which has recently stabilized near the crucial 0.8500 level. Following disappointing UK retail sales data and soft PMI reports, the pound appears overvalued against the euro. ING forecasts a near-term rise in EUR/GBP, influenced by economic data and central bank policies.

Key Points:

  • UK Economic Data: Recent figures for UK retail sales and PMIs suggest a weakening economic backdrop, which has negatively impacted GBP.
  • Central Bank Expectations: The Bank of England’s (BoE) potential dovish shift contrasts with a hawkish cut expectation from the ECB, potentially favoring EUR strength against GBP.
  • Political Risk Premium: The upcoming UK general election in July might introduce a risk premium on sterling, further supporting EUR/GBP.
  • Market Pricing: The current market pricing of BoE rate cuts seems overly cautious, with ING still anticipating an initial cut in August despite political events.

Conclusion:

Considering the softer UK economic indicators and the shifting monetary policy landscape, ING maintains a bullish stance on EUR/GBP, expecting the pair to move higher in the short to medium term. This outlook is bolstered by potential political uncertainties in the UK and diverging rate expectations between the ECB and BoE.

Source:
ING Research/Market Commentary

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