Sterling rallied briefly on higher money market rates but ended the day weak. The ING economists believe the EUR/GBP could drop back to 0.84.
No real signs of fiscal risk in the British pound
“We wondered if fears over future Tory Prime Minister Liz Truss’s spending plans were driving up maximum credit values and effectively putting a fiscal risk premium on sterling. But the five-year sovereign credit default swap The UK is still trading at a narrow 17 basis points, suggesting that these fiscal concerns may be overdone.
“We are more into the camp that BoE rate hikes may see sterling confound some of the direst predictions about its path forward. And EUR/GBP could return to the 0.8400 area.”
Source: Fx Street