Key Moments
- EUR/GBP is described as remaining “offered” despite substantial declines in UK short-dated interest rates.
- Technical support in the 0.8600/0.8620 zone is highlighted as a key level that market participants expect to hold.
- ING maintains a baseline view that the 0.8600/0.8620 area will cap the downside in EUR/GBP, even as weaker UK data could weigh on sterling.
Technical Support Dominates EUR/GBP Outlook
ING economist Chris Turner notes that EUR/GBP continues to trade with a soft tone even after sharp moves lower in UK short-dated rates, with a strong technical floor identified around the 0.8600/0.8620 band. He states that this area is widely viewed as robust support and is expected by the market to prevent deeper declines in the cross.
Turner underscores that this view is also reflected in the FX options space, where the one-month EUR/GBP risk reversal – described as the price of a call option relative to an equivalent put – is reported to be “bid at its recent highs of 0.8%.”
Interest Rate Expectations and BoE Policy Stance
ING highlights that, despite meaningful downward adjustments in UK short-dated interest rates, the currency pair has not rallied significantly, leaving EUR/GBP “surprisingly offered.” Turner explains that the firm’s UK economist sees the threshold for any additional Bank of England policy rate hike as “exceptionally high,” given that the current stance is already considered restrictive.
He adds that softer UK activity indicators could temper expectations for further BoE tightening, potentially easing some of the pressure around additional rate increases.
Impact of UK PMIs and BoE Communication on Sterling
Looking at near-term drivers, Turner cautions that weaker results from the March flash UK PMIs could exert some downward pressure on sterling. At the same time, he points to scheduled comments from a key BoE policymaker as another potential catalyst for market moves.
“A big drop in some of the March flash UK PMIs today could weigh a little on sterling, although we should be wary of comments from Bank of England arch-hawk, Huw Pill, at 1430CET today. He could well say he plans to vote for an April hike.”
Baseline Scenario for EUR/GBP
In terms of the central forecast, ING maintains that the currently identified support band should remain intact. Turner reiterates that the firm expects the cross to find a floor within that range.
“Our baseline assumes 0.8600/8620 does contain EUR/GBP downside.”
Key Levels and Market Indicators
| Metric / Level | Detail |
|---|---|
| EUR/GBP Technical Support | 0.8600/0.8620 area |
| EUR/GBP 1-month risk reversal | Bid at recent highs of 0.8% |
| BoE Policy View | Bar “exceptionally high” for further rate hike |
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