It’s been a quiet week on the UK calendar, but weak eurozone economic indicators have hit EUR/GBP, notes Francesco Pesole, FX strategist at ING.
GBP/USD could start looking expensive soon
“We saw the pair test the 0.8320 level earlier this week, and while we still see a good case for a bounce beyond the near term, as the Bank of England’s easing could be underestimated, we will probably need some inflationary surprise in the eurozone to avoid testing 0.8300 soon.”
“The EUR:GBP swap rate spread collapsed as markets raised bets that the bleak eurozone outlook will force the ECB to make bigger cuts than the BoE, and is now at -155bp, the widest since December 2023. That should keep some pressure on the pair in the short term.”
“On the wire, new highs of 1.34+ are also justified by the policy rate differential, although expectations of a 50bp cut by the Fed could be wrong, and GBP/USD could start looking expensive soon “
Source: Fx Street
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