ING’s Francesco Pesole highlights that the EUR/GBP currency pair recently dropped to 0.870, primarily due to sterling’s (GBP) heightened sensitivity to a sharp equity rally [1]. Pesole sees limited further downside for EUR/GBP, citing that European Central Bank (ECB) rate expectations are likely to remain 'sticky,' while the Bank of England (BoE) could see more dovish repricing if energy prices continue to decline [1]. He notes that the BoE was already prepared to cut rates before the onset of the war, and believes that second-round effect risks in the UK are significantly lower than in 2022 [1].
Pesole expects BoE communication, including upcoming remarks from Governor Andrew Bailey, Catherine Mann, and Megan Greene, to provide markets with an opportunity to trim pricing below one hike this year, which is currently at 30 basis points [1]. This could offer bullish momentum for EUR/GBP, with ING maintaining a conviction that the pair will return to 0.880 within this quarter [1].
The article suggests that the market may react to dovish signals from the BoE, especially if energy prices keep falling, potentially supporting a move higher in EUR/GBP [1]. No specific analyst opinions or forward-looking statements beyond ING’s forecast for a return to 0.880 are provided [1].
CONCLUSION
ING expects limited further downside for EUR/GBP and anticipates a rebound to 0.880 this quarter, driven by dovish BoE repricing and sticky ECB expectations. Market participants may look to upcoming BoE communications for signals, especially as energy prices influence rate outlooks. The sentiment is moderately positive for EUR/GBP, with medium market impact expected.