TD Securities strategists have highlighted asymmetric downside risks for the British Pound (GBP) against the Euro (EUR), citing that the EUR/GBP currency pair appears notably undervalued when compared to rate differentials, data surprises, and equity performance [1]. According to their analysis, while markets broadly expect the European Central Bank (ECB) to keep interest rates on hold in July, hawkish guidance for the remainder of 2026 could provide support for the Euro and potentially push the EUR/GBP pair back toward the 0.86 level [1].
The strategists note that the Euro has generally weakened against major global currencies over the past three months, with the exception of the Swedish Krona (SEK) and Swiss Franc (CHF) [1]. However, they believe the largest dislocation currently exists in the EUR/GBP pair [1]. The FX volatility market is reportedly not pricing in any risk premium for the July ECB meeting, as market participants expect ECB President Lagarde to maintain data-dependent forward guidance [1].
TD Securities further states that falling global energy prices, following the US and Iran's signing of a Memorandum of Understanding in June, have reduced the urgency for consecutive rate hikes [1]. Despite this, they see asymmetric upside risks for EUR/GBP if the ECB delivers hawkish guidance for the rest of 2026, with the potential for the pair to rebound toward 0.86 as market focus returns to macroeconomic fundamentals [1].
No specific market reactions or analyst opinions beyond TD Securities' outlook are mentioned in the article. There are also no references to ticker symbols or additional forward-looking statements from other analysts [1].
CONCLUSION
TD Securities anticipates that hawkish guidance from the ECB could support the Euro and lead to a rebound in the EUR/GBP pair toward 0.86. The market is currently not pricing in significant risk for the July ECB meeting, but attention may shift back to macroeconomic fundamentals if the ECB signals a more aggressive stance for the rest of 2026.