ING strategist Francesco Pesole argues that EUR/GBP has limited further downside after slipping below 0.8700, as United Kingdom (UK) political risks and stretched Bank of England (BoE) tightening expectations offset risk-on pressures. He notes that recent UK inflation data do not alter the outlook, with the BoE still expected to stay on hold through year-end.
Political risk and rates cap Pound gains
“We think EUR/GBP has limited downside potential after breaking below 0.870 over the past 24 hours.”
“Risk‑on episodes tend to weigh on EUR/GBP, but rate differentials usually emerge as the more durable driver.”
“In that context, the 41bp of tightening priced into the GBP curve looks stretched in our view relative to the 54bp of expected ECB tightening.”
“That should be enough to keep the BoE on hold next week and, in our view, until year‑end.”
“On our base case, inflation peaks briefly around 4% and oscillates between 3.5‑4% in 2H, though current gas pricing points to a peak closer to 3.5% – still not enough to force a hike.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/eur-gbp-limited-downside-after-inflation-data-ing-202604221007
