Economists at ING have scrutinized the recent rebound of EUR/GBP from the 0.8500 level but express skepticism about the pair’s potential for an extended rally in the near term.
The UK’s domestic narrative has been characterized by a continuous upward revision in growth expectations, supported by a rise in PMIs throughout February. ING analysts note that the Bank of England has the advantage of relying on data to articulate its stance, in contrast to the European Central Bank (ECB), which has had to address overly optimistic rate cut expectations in the market.
While the rebound of EUR/GBP from its low at 0.8500 was anticipated, ING harbors reservations about the pair’s ability to sustain a further rally in the short term. They posit that market sentiment may shift towards scaling back 2024 ECB easing expectations to 100 basis points from the current 90 basis points, rather than pricing in three full cuts in the UK, presently estimated at 62 basis points.
However, ING maintains a bullish medium-term view on the EUR/GBP pair, underlining the impact of policy divergence between the ECB and the Bank of England. The divergence in economic policies is expected to be a key driver influencing the pair’s dynamics in the coming months.
