Risk Aversion Keeps EUR/GBP From Falling Further

Key Moments

ING View: Limited Room for Sterling Outperformance

ING strategist Francesco Pesole observes that EUR/GBP is trading slightly above his team’s estimate of short‑term fair value. In his assessment, shifts in Bank of England (BoE) communication and incoming UK data could impact rate expectations, but he highlights that fragile global risk appetite is likely to curb pronounced downside in EUR/GBP. As a result, he sees constrained potential for a prolonged phase of Pound strength against the euro.

Heavy Central Bank Speaker Calendar

Pesole notes a busy schedule of commentary from European Central Bank (ECB) officials. He points out that,

“Today, we’ll hear from a dove (Piero Cipollone) as well as Chief Economist Philip Lane. President Christine Lagarde is due to deliver remarks on Wednesday and there are plenty of other speakers to watch.”

On the UK side, he underlines that BoE policymakers tend to be less vocal outside formal meetings than their Federal Reserve or ECB counterparts, but this week still brings several important appearances. As he explains,

“While Bank of England policymakers aren’t as active in off-meeting comments as Fed or ECB members, we’ll hear from Chief Economist Huw Pill tomorrow, and from Megan Greene, Sarah Breeden and Alan Taylor later this week. Here, rate expectations should also be very sensitive to any remarks.”

Key UK Data in Focus

The upcoming UK macroeconomic releases are also on ING’s radar. Pesole flags that inflation data are unlikely to be the main driver in the very near term, stating,

“On the data side, UK inflation for February is published on Wednesday but should not matter much given the March developments so far. Tomorrow’s PMIs will be more interesting.”

This suggests that purchasing managers’ indices may play a more significant role than the February inflation print in shaping market views on the UK growth and policy outlook.

Valuation and Market Sentiment

Summarizing the valuation backdrop, Pesole writes,

“EUR/GBP is around 0.5% above its short-term fair value in our estimates, but risk sentiment instability argues against major downward corrections.”

In other words, even though the pair appears slightly rich relative to ING’s fair value metric, the unsettled risk environment is seen as a barrier to a more pronounced move lower in EUR/GBP, thereby restraining the extent of potential Pound gains.

EUR/GBP Snapshot