In Monday's session, the EUR/GBP cross remained practically unchanged. ING economists analyze the outlook for the British pound.
Some speculation about a rate cut in May
The British Pound swap curve has seen a moderate upward revision since the start of the week, although it continues to point a 25% implied probability of a rate cut by the Bank of England at the May meeting. This probability is higher than that of the Fed (also in May) and the ECB (April).
Looking at the prices for December, they are now very similar for the BoE (-76 bp) and the Fed (-80 bp), while the ECB's expectations remain more moderate (-97 bp). In our opinion, however, markets expect too much easing in the euro zone. We expect 75 basis points. Meanwhile, we see the BoE cutting 100 bp and the Fed 125 bp between now and the end of the year.
As we expect the USD decline to begin to materialize in the coming weeks, we see GBP/USD receiving support. However, EUR/GBP, which mirrors the gap between BoE and ECB rate expectations, may not re-explore the low 0.8500 zone seen in February and early March.
Source: Fx Street
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