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Pound to Euro Outlook: "GBP somewhat vulnerable going into Q224" say Credit Agricole

March 27, 2024 - Written by John Cameron


The Pound to Euro exchange rate (GBP/EUR) found support just below 1.1650 on Tuesday and traded just above this level after the US open.

There were no major data releases during the day with markets focussing to an important extent on interest rate expectations.

The calendar could also have a significant impact in the short term.

SocGen commented on positive short-term influences; “Seasonality in April is also typically bearish EUR/GBP.” (positive for GBP/EUR)

ING commented that; “European Central Bank (ECB) doves are continuing to reiterate the message that consensus within the Governing Council is shifting to imminent easing.”

According to Bank of Italy Governor Panetta momentum is gathering for an interest rate cut; “The consensus emerging – especially in recent weeks – within the ECB governing council points in this direction.”

ING added; “Despite more cautious messages by other ECB members in the past few days, there are clear indications that the Bank is prepared to cut rates this summer and that June remains the most likely meeting, as policymakers will want to see more convincing evidence on wages and inflation.”

For the Bank of England, ING noted that markets are pricing in 76 basis points of easing by the end of 2024 and 80 abasis points by the Federal Reserve.

Markets are also pricing in 97 basis points of easing by the ECB, close to four 25 basis-point cuts.

ING considers that this is excessive as it expects three rate cuts.

In this context, the bank commented; “EUR/GBP, which is a mirror of the BoE-ECB rate expectation gap, may not re-explore the low 0.85’s seen in February and early March.

This implies that there will be strong GBP/EUR resistance on any approach to 1.1765.

MUFG also noted that rate expectations are closely matched; “The dovish shift in BoE policy guidance after last week’s MPC meeting has resulted in market expectations for the start of monetary easing cycles of major central banks becoming even more aligned. The BoE, ECB and Fed are now all expected to begin cutting rates in June.”

In this context, it added; “Current market expectations for a synchronized start to rate cut cycles from major central banks appear reasonable and favour further consolidation for the major FX pairs.”

Bank of America, however, expects the ECB will eventually turn more aggressive; “Data will eventually push the ECB to speed up the cutting cycle by more than they currently expect. Hence, our call for the ECB depo to be at 2% by mid-2025.”

According to NatWest; “High frequency data shows we are moving through point of peak pessimism for the euro area.

This should limit any selling pressure on the Euro.

Socgen focussed on the shift in BoE expectations and expects the Pound to struggle beyond April; “Dovish MPC comments and lower inflation have turned the tide and while a week ago, Sterling was 2024’s top G10 currency, it has slipped into second place and is likely to fall further as political uncertainty, pressure for tighter fiscal policy and lower inflation weigh.”

According to Bank of America; “Recent developments in data have allowed the BoE to take another (baby) step towards beginning the cutting cycle. However, we still expect a first cut in August, with one per quarter from there.”

The bank considers that services-sector inflation remains high and sticky while domestic inflation is still far from moving towards the 2% target.

Credit Agricole sees little scope for Pound gains and added; “stretched positioning instead leaves the GBP somewhat vulnerable going into Q224.”

According to Monex Europe, there is scope for Pound support; “The quiet data calendar is offering traders the opportunity to take stock of last week's market moves. On the UK side of the equation this meant a modest unwind of BoE easing expectations which seemed overly aggressive to us coming into the week."
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