British Pound: Dovish repricing points to weakness against Euro – ING

ING’s Francesco Pesole observes EUR/GBP has slipped back to the 0.8550-0.8560 area as the earlier Euro premium fades and bond market calm returns. He expects the pair to track rate differentials in a low-volatility environment, but still favours higher EUR/GBP, targeting 0.870 in coming months as he sees current Bank of England tightening expectations as too hawkish.

Sterling outlook tied to repricing risk

"EUR/GBP has gradually eased back to the pre-UST buybacks 0.8550-60 area – a signal the positive premium on the euro has been scaled back."

"If calm is indeed restored in the bond market, expect the pair to return to tracking short-term rate differentials closely."

"That could mean a low volatility environment though, as the UK calendar is rather empty for the next couple of weeks."

"We still expect no hikes and a move to 0.870 in the coming months on the back of dovish repricing in the GBP front end."