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EUR / GBP: Lower to accelerate below 0.8472

MUFG Bank Analysts they see a commercial idea in shortening the crossing EUR/GBP with a target at 0.8350 and a stop loss at 0.8670. They point out that the positive evolution of COVID-19 cases reinforces the bullish outlook for the pound.

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“We have been encouraged by recent positive UK COVID data suggesting that the risk of further pandemic-related disruptions in the UK economic recovery has decreased. The launch of the vaccine and the number of people who have already contracted COVID should help mitigate the severity of current and future COVID waves, allowing the government to refrain from reimposing significant restrictions. A strengthened economic recovery and the creation of upside risks to its inflation target should keep pressure on the Bank of England to tighten an exceptionally flexible policy. “

“The policy divergence between the Bank of England and the ECB should continue to widen as the ECB has strongly indicated that it does not plan to raise rates, even as the euro zone economy is recovering more strongly and the inflation will rise above target. “

“We expect sterling gains to accelerate against the euro once the year-to-date low of 0.8472 is removed.”

“The main risks to the business idea include: i) a more heightened period of risk of operations hitting the British pound, ii) the Bank of England offers a moderate surprise policy and iii) COVID cases in the UK. Kingdom recovered sharply again in response to recent reopening measures. If the Bank of England sets a much lower threshold for initiating a quantitative adjustment, expectations of future rate hikes would be lowered. “

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