ING’s Francesco Pesole notes that the EUR/GBP currency pair has slipped back to the 0.8550-0.8560 range as the earlier premium on the euro has diminished and calm has returned to the bond market [1]. Pesole expects that, if this stability persists, the pair will closely track short-term rate differentials in what is likely to be a low-volatility environment, especially given the lack of significant UK economic data releases in the coming weeks [1].
Despite the recent easing, ING maintains a view favoring a higher EUR/GBP, targeting a move to 0.870 in the coming months. This outlook is based on the expectation that current market pricing for Bank of England tightening is too hawkish and will be subject to dovish repricing [1]. Pesole explicitly states, "We still expect no hikes and a move to 0.870 in the coming months on the back of dovish repricing in the GBP front end" [1].
The analysis suggests that the sterling's outlook is closely tied to repricing risk, with the potential for further weakness against the euro if market expectations for UK rate hikes are scaled back [1].
CONCLUSION
ING anticipates further weakness for the British Pound against the Euro, driven by expectations of dovish repricing in UK rate markets. With a target of 0.870 for EUR/GBP in the coming months and no Bank of England hikes expected, market participants may see limited volatility but a gradual shift in favor of the euro.