According to Chris Turner at ING, the British Pound (Sterling) has outperformed the Euro recently, despite broad Dollar strength in the market. The most significant drop in EUR/GBP occurred on Tuesday during a broad deleveraging phase, which ING attributes to stretched positioning among asset managers—specifically, large net short positions in Sterling and long positions in the Euro [1]. Additionally, the re-pricing at the short end of the interest rate curve, as the market prices out Bank of England easing, has further supported Sterling's performance [1].
ING's UK economist, James Smith, has revised his forecast for the next Bank of England rate cut, now expecting it in April instead of March. However, he still anticipates two BoE rate cuts this year, which should keep EUR/GBP trading above 0.88 [1]. Despite these supportive factors, ING warns that Sterling remains vulnerable if bond markets come under pressure again. One scenario outlined involves high energy prices curtailing or reversing monetary easing cycles, populist governments renewing energy subsidies, and bond markets being negatively impacted—a situation reminiscent of the 2022 gilt crisis [1].
No specific market reactions or analyst opinions beyond ING's forecasts and scenario analysis are discussed in the article. There are no explicit forward-looking statements regarding immediate market moves, but the potential for bond market stress is highlighted as a risk for Sterling [1].
CONCLUSION
Sterling has recently outperformed the Euro due to positioning and reduced expectations for Bank of England easing, with ING now forecasting the next BoE rate cut in April and two cuts in total for 2024. While these factors support Sterling, ING cautions that the currency remains exposed to bond market stress, particularly if high energy prices disrupt monetary easing cycles. The market takeaway is that Sterling's current strength may be vulnerable to future bond market volatility.