EUR/GBP: Support zone expected to hold – ING

ING economist Chris Turner notes EUR/GBP remains offered despite sharp declines in UK short‑dated rates, with clear technical support at 0.8600/0.8620 that markets expect to hold. He argues the bar for a Bank of England (BoE) hike is very high, warns weak UK PMIs could weigh on Sterling, but still assumes the 0.8600/0.8620 area will contain EUR/GBP downside.

Sterling firm as BoE bar stays high

"Even though UK short-dated interest rates had some of the biggest adjustments lower yesterday, EUR/GBP remains surprisingly offered. Clear support is defined at the 0.8600/8620 area, which we – and probably the rest of the market – expect to hold. That is the same for the FX option market, where the EUR/GBP one-month risk reversal – or the price of a call option over an equivalent put option – remains bid at its recent highs of 0.8%."

"Our UK economist also feels the bar is exceptionally high for the Bank of England to hike the already restrictive policy rate, and it may well be that softer activity data takes some of the sting out of BoE tightening expectations."

"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."

"Our baseline assumes 0.8600/8620 does contain EUR/GBP downside."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)